The Pound is a screaming BUY

Pound a ‘Screaming Buy’ as U.K. Attracts Investment

• “The U.K. will actually exit the downturn on the earlier side,” said Robert Blake, head of strategy for North America in Boston at State Street. “The pound is undervalued.”

• "Strategists at New York-based Citigroup Inc. said in a report last week the pound is “among the most undervalued major currencies,” trading almost 15 percent below “fair value” versus the dollar. Barclays Plc predicts it will rise as much as 18 percent against the dollar and 11 percent versus the euro in the coming year. Goldman Sachs Group Inc. sees a 23 percent gain versus the dollar and 15 percent advance against the euro.

• Money is already pouring into Britain. Currency flows into the pound from pension funds, insurers and other institutional investors in the 60 days to May 13 were more than 99 percent higher than any comparable period since 1997, according to Boston-based State Street Global Markets LLC, the world’s second-largest custodian of financial assets, with $11.3 trillion.

• ‘Extreme Undershoot’

“There was an extreme undershoot of sterling versus the euro during the financial crisis,” said David Powell, a currency strategist in London at Bank of America-Merrill Lynch. “The risk of implosion for the financial system has largely passed, sparing the U.K. economy and sterling.”
The pound strengthened 0.8 percent to 88.23 pence per euro as of 10:03 a.m. in London, taking its advance this month to 1.4 percent. Against the dollar it rose 0.5 percent to $1.5254, a 3.1 percent gain since the end of April. The currency appreciated 3.3 percent last month against the dollar, the biggest gain since soaring 5.1 percent in the same month of 2006.
Investors are turning bullish on sterling as the slowdown in the U.K. economy shows signs of abating."

• Buy the Pound

Goldman Sachs recommends its clients buy the pound versus the dollar as one of its top trades this year, targeting $1.65. Barclays said the currency will rise to $1.73 and 82 pence per euro by year-end. Credit Suisse raised its three-month forecast on May 12 to 84 pence per euro from 93 pence and told investors to sell the euro versus sterling as a “tactical trade.”
Trading patterns suggest the pound may strengthen to 87.48 pence per euro before it meets a so-called resistance level, according to technical analysis using Fibonacci numbers.

• “The huge monetary easing and the 30 percent depreciation of the pound make the U.K. better off on the road to recovery, compared to many other countries, particularly Europe,” said Richard Benson, who oversees $14 billion of currency funds at Millennium Asset Management in London.

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