UBS's investment team has revised down its near-term outlook for the British pound against the US dollar, setting a June target for GBP/USD at 1.34, according to a report published on Friday. The bank cites a combination of dollar strength driven by safe-haven demand and higher oil prices, plus domestic headwinds in the UK linked to political uncertainty ahead of May elections and concerns about economic growth.
In the report, UBS highlights that the dollar has benefited from flows into safe assets amid rising US-Iran tensions and from a higher oil price environment. By contrast, sterling faces specific pressures at home even though the UK is less exposed to energy-market shocks than the Eurozone. The bank notes that as a net energy exporter, the US may actually gain from elevated energy prices while the UK still contends with inflationary spillovers.
Monetary policy expectations and market pricing
Recent upward pressure on inflation from oil has shifted market pricing in ways that reduce expectations for Bank of England -rate cuts and have in some cases opened the door to considerations of hikes. UBS points to the BoE's most recent meeting in which policymakers delivered a unanimous 9-0 vote to hold rates steady while acknowledging recent softness in domestic activity.
UBS analysts Constantin Bolz and Clémence Dumoncel argue that market expectations for further rate hikes are overdone. The firm retains a view that easing will occur later in the year, although not before November. In the interim, the pound is expected to receive some support from its relatively attractive carry among G10 currencies, which should temper downside pressure.
Near-term scenario and support levels
The report's baseline assumes the Iran-related conflict will be short-lived and that oil prices will ease by June. If that plays out, upward pressure on the dollar should diminish. Nonetheless, UBS warns that in the near term, the United States' stronger cyclical position coupled with safe-haven flows is likely to keep GBP/USD under pressure. The next key support for the pairing is identified near the November lows around 1.30.
UBS sets resistance in the near term at about 1.35, with stronger resistance around recent highs of 1.37-1.38. For its forecast path, the firm lists GBP/USD at 1.34 for June, 1.37 for September, and 1.40 for both December and March 2027, implying a gradual recovery as political risks fade and the BoE approaches the end of its easing cycle.
Medium-term recovery case
As election-related political uncertainty recedes and growth indicators firm up, UBS expects the pound to recover toward its medium-term fair value. The report points to the currency's current undervaluation and the potential for firmer growth data to underpin a rebound to 1.40 later in the forecast window.
Downside and upside risk scenarios
UBS outlines key risk scenarios. On the downside, the firm cautions that a further escalation of global tensions, a Federal Reserve that proves more hawkish than expected, or a more dovish Bank of England could push GBP/USD into a 1.25-1.30 range. Conversely, a quicker diplomatic resolution to tensions in Iran, clearer domestic political outcomes in the UK, or a BoE that adopts a more hawkish stance could accelerate a sterling recovery and propel the currency toward 1.40 sooner.
Euro-pound outlook
UBS has also lowered its near-term forecast for EUR/GBP to 0.86, reflecting sterling's relative resilience to the euro amid energy market volatility. The bank notes that although both currencies are affected by energy dynamics, the impact has been less severe for sterling because the UK is relatively less vulnerable to energy-market swings than its continental counterparts.
The 0.86 level is identified as a key near-term support that UBS expects to be breached and to form a new equilibrium lower down. The bank places the next support in the 0.84-0.85 range and views resistance around 0.88-0.89. UBS recommends waiting for greater clarity on the May local elections before taking short EUR/GBP positions, but sees value in selling downside GBP risks for a yield pickup given expected election-driven volatility.
European recovery and energy risk
UBS comments that Europe's economic recovery is gaining traction and is being supported by increased fiscal spending. However, the firm says much of the fiscal and monetary support is already reflected in current euro pricing, which limits additional upside for the currency. Higher energy prices remain a meaningful downside risk for Europe and could erode some positive expectations for the euro if they persist.
Overall, UBS's revised projections reflect a near-term preference for dollar strength and sterling weakness, with a conditional medium-term recovery for the pound contingent on easing geopolitical risk, clearer UK political outcomes and a closing of the BoE's easing cycle.