Coalition fears see Morgan Stanley recommend selling the pound

May 11, 2010 12:10 PM

As Business Week report here, Morgan Stanley are recommending selling the pound against the dollar.  The pound is currently worth about $1.48.  Their target price is $1.35.

As I explained earlier, this is driven by an unfavourable comparison with Europe and the US stabilising their position and less than promising progress in the coalition negotiations:

"Currently, it seems that a pact between the Liberal Democrats and Labour party is looking increasingly likely. We think that this coalition would probably find it difficult to make the required tough spending cuts to the public deficit, risking a downgrade by the rating agencies in coming months. With the eurozone's deficit problems ring fenced for now after the weekend's larger-than-expected financial stabilisation package, the market may turn its attention to the UK's serious public finances, which are hard to decipher from the weakest members of the euro area (see Exhibit 1)."

As Business Week report here, Morgan Stanley are recommending selling the pound against the dollar.  The pound is currently worth about $1.48.  Their target price is $1.35.

As I explained earlier, this is driven by an unfavourable comparison with Europe and the US stabilising their position and less than promising progress in the coalition negotiations:

"Currently, it seems that a pact between the Liberal Democrats and Labour party is looking increasingly likely. We think that this coalition would probably find it difficult to make the required tough spending cuts to the public deficit, risking a downgrade by the rating agencies in coming months. With the eurozone's deficit problems ring fenced for now after the weekend's larger-than-expected financial stabilisation package, the market may turn its attention to the UK's serious public finances, which are hard to decipher from the weakest members of the euro area (see Exhibit 1)."

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