Investors should sell the euro against the pound as concern about the financial situation in Greece dampens demand for the 16-nation currency and a recovering UK economy boosts sterling, UBS says. The bank is also recommending that clients sell the Australian currency against that of New Zealand on expectations the Reserve Bank of Australia (RBA) will pause after raising interest rates at its next meeting on February 2. Europe's recovery will be uneven and no nation can expect "special treatment", Jean-Claude Trichet, the president of the European Central Bank (ECB), said last Thursday.
"ECB's Mr Trichet was dovish last week and Greece is likely to keep weighing on the euro," Mansoor Mohi-uddin, the head of currency strategy in Singapore atUBS, Switzerland's biggest bank by assets, wrote yesterday in a note to clients. The bank expected "bearish sentiment on sterling to abate as the UK economy recovers". The pound will also advance as Mervyn King, the governor of the Bank of England, and his colleagues pause in their bond purchase programme next month, UBS said.
Investors should sell the euro at 88.15 pence, targeting a decline to 86 pence, UBS said. They should exit the trade if the euro strengthens to 89.30 pence, the note said. Investors should sell Australia's dollar at NZ$1.2510 as it is likely to weaken to NZ$1.22. They should end the trade if the so-called Aussie rises to NZ$1.2680. The currency traded at NZ$1.2522 yesterday. "The RBA will only hike once more in February and then pause until the third quarter," Mr Mohi-uddin wrote.
"In contrast, the Reserve Bank of New Zealand may hike as early as March, making the Australian dollar-New Zealand dollar trade lower from here," Mr Mohi-uddin said. * Bloomberg