Sterling Likely to Remain Supported Vs Euro — Market Talk

What happened

UBS strategist Benjamin Jarret says sterling should stay supported against the euro after recent gains. He says this month's rise came from a weaker euro on French debt and civil unrest concerns. The euro rose 0.1% to 0.8388 pounds.

Confirmed

Global impact / market context

Sterling strength against the euro changes the value of sales and costs for companies that trade with Europe, because each euro buys fewer pounds. A higher pound can reduce reported revenue from euro sales and make exports dearer, which means exporters may report lower profit per sale.

Analyst inference

Investors have been unwilling to buy sterling because of a structurally negative view on the U.K., but they have also not wanted to sell it because of attractive yields, which means the income paid on holdings. Jarret says this feeds resilience and reduces flows in both directions.

Analyst inference

What to watch

1. Watch whether French debt and civil unrest concerns ease or worsen. If they worsen, the euro could fall further; if they ease, the pound's recent support could fade. Analyst inference
2. UBS expects the euro to reach 0.8350 pounds at year-end. Jarret's view means he expects sterling to strengthen further from current levels, so euro weakness against the pound may continue. Confirmed
3. Watch how the euro trades around 0.8350 pounds. A move below that level would show sterling gaining more than UBS expects, which could change how investors position. Analyst inference

Evidence

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