(Bloomberg) -- The market is worrying too much about Britain crashing out of the European Union without a deal and the pound is set to recover from here, according to UBS Wealth Management.
The money manager has a long position on the pound versus the dollar, according to Dean Turner, economist in the U.K. investment office, and sees sterling rising 3% to $1.29 within three months. That would be just before the Brexit deadline of Oct. 31, by which point incoming Prime Minister Boris Johnson has promised to take Britain out of the European Union "do or die."
UBS Wealth expects the U.K. Parliament to block Johnson from pursuing a no-deal Brexit and foresees a third extension to the deadline, followed by a general election or second referendum. The wealth manager also sees the U.K. economy holding up and the central bank keeping interest rates unchanged, even while other major economies look set for an easing cycle.
"If, as we expect, Parliament forces Johnson to seek an extension to the October Brexit deadline, pound-dollar should start to rebound from the recent lows," wrote Turner and his colleague Daniel Trum in a research note.
The pound has slipped 3% over the past three months, making it the worst performer among Group-of-10 currencies. Short-term direction for the pound is likely to be set by Johnson’s choices for cabinet, after he is formally anointed later Wednesday.
Sterling gained 0.5% to $1.2497 as of 1:24 p.m. London time on Wednesday, as traders bought the pound against the euro following weak euro-area data. The pound gained 0.5% to 89.16 pence per euro, after earlier touching the strongest level versus the common currency since June 21.
