(Bloomberg) -- The pound’s world-beating rally has turned Amundi SA from bears to bulls, even as JPMorgan Chase & Co. warns positioning looks stretched.
Europe’s largest asset manager, which runs $2.3 trillion in assets, has shifted to an overweight position in recent months, and expects more gains after the currency notched a one-year high. The firm’s head of global FX Andreas Koenig is targeting $1.35 by the end of the year, from around $1.29 currently.
Amundi joins a rush into the pound by banks including Goldman Sachs Group Inc., which predict gains amid a brighter outlook for the UK’s economy and hopes of political stability after Prime Minister Keir Starmer’s Labour party swept in on a landslide. The view that the Bank of England will cut interest rates less than other central banks has also offered support, putting sterling on track for its best month since November.
“You have an improvement in the economic environment, and you have a relatively stable government, so you have a lot of arguments in favor of sterling,” Koenig said. “It might be less risky and it might be a diversifying alternative in the portfolio, which is supportive.”
The UK’s newfound calm, which contrasts with dramatic twists and turns in US politics ahead of a presidential election and ongoing political crisis in France, has helped push the pound beyond $1.30 for the first time in a year. On Tuesday, it traded little changed at $1.2925, having gained 1.5% since the start of the year to outperform all Group-of-10 peers.
Sterling has also reached the strongest since August 2022 versus the euro, at around 84 pence — and Amundi sees it eventually rallying further to 82 pence.
Last year, Amundi shorted the pound on the view that it could fall as low as $1.21 as the country tipped into recession. Now, Koenig says its overweight position is “a core conviction.”
The broad optimism toward UK assets has fueled bullish bets on the pound to an all-time high, according to Commodity Futures Trading Commission data going back to 1999. JPMorgan warned this week the record bets are a near-term risk to the currency, although it kept its forecast that sterling will hit $1.35 by March next year.
For Koenig, the pound may still be under-owned because in the aftermath of Brexit investors scaled back their exposure to the UK. He said any pullback would be an opportunity to add to his overweight position versus the dollar and the euro, particularly as the BOE starts to cut rates. Traders are betting that this may happen in September.
“A correction due to the start of the easing cycle is perhaps a good buying opportunity,” Koenig said. “Cable is already at $1.30, but if you look at very long term charts, it’s still relatively low.”
(Adds latest pound price in sixth paragraph.)
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