LONDON, 27 November 2025 — Morgan Stanley has officially closed its bullish call on the British pound, citing weakening post-budget sentiment and expectations that the earlier optimism driving sterling gains is diminishing.
What’s Behind the Reversal
- The firm had previously backed the pound on expectations that the UK’s recent budget, which included tax hikes and fiscal measures, would shore up investor confidence in the currency.
- However, in a note to clients this week, Morgan Stanley warned that the carry-trade appeal of sterling is fading, and that the currency is likely to underperform relative to risk-sensitive peers and the euro over the coming months.
- While the pound might still fluctuate in the short term, possibly rising toward 1.36 USD on bouts of dollar weakness, the bank sees limited long-term upside.
What This Means for Markets & Investors
- Currency traders may see reduced momentum in pound-related trades; the fading bullish call could dampen speculative inflows into GBP.
- Fixed-income investors might pivot away from UK-centric carry trades or high-yield opportunities as sterling loses appeal, which could affect demand for UK government bonds (gilts).
- Global investors with exposure to UK assets, equities, real estate, and other pound-denominated holdings, may need to reassess currency risk, especially if GBP weakens against the euro or dollar.
- Emerging-market and risk-asset watchers might take note: a weakening pound could influence FX flows, capital allocations, and cross-currency investments involving Europe and Asia.
Key Risks & What to Watch
- The trajectory of the pound will remain sensitive to UK domestic developments: future fiscal policies, economic growth data, and interest-rate decisions could still cause short-term rebounds.
- External factors, such as global risk sentiment, dollar strength, or broader shifts in global interest rate cycles, may influence sterling’s path independently of UK fundamentals.
- Investors should monitor UK economic data (inflation, growth, employment), fiscal-policy signals and currency-market flows, which will shape GBP’s near-term volatility and long-term trend.
