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UBS Says Sell Pound Versus Swiss Franc, Will Weaken to Record

Investors should sell the pound against Switzerland’s currency in a bet that sterling will weaken to 1.5000 francs, UBS AG said, the lowest level on record.

The U.K. will announce an austerity program on Oct. 20 that will slash most departments’ budgets by a quarter to cut a deficit that hit a postwar high of 11 percent of the economy in the year through March. The Treasury’s fiscal monitor has predicted 490,000 public-sector jobs will be lost by April 2015.

“Sterling is likely to weaken further once the U.K. government’s fiscal austerity program starts,” wrote Mansoor Mohi-uddin, chief currency strategist in Singapore at UBS, the world’s second-largest foreign-exchange trader, in an e-mail.

The pound traded at 1.5644 francs as of 11:42 a.m. in Tokyo from 1.5580 francs in New York yesterday, when it fell to 1.5551 francs, the lowest level since Jan. 5, 2009. The 1.5000 level would be the lowest since January 1971 when data on the currency pair were first compiled by Bloomberg.

UBS advised selling the pound at 1.5580 francs, with a stop-loss order at 1.5825 and a target of 1.5000. A stop loss is an automatic instruction to either buy or sell a currency at a certain level to limit losses in case the bet goes the wrong way.

Switzerland’s gross domestic product grew at an annual 2.6 percent pace in the second quarter, after a 2.3 percent increase in the previous period, according to a Bloomberg News survey of economists before the data is released tomorrow. The euro- region’s economy expanded 1 percent in the second quarter, the European Union’s statistics office in Luxembourg said last month.

“We continue to like the franc higher as the Swiss economy improves faster than the eurozone,” Mohi-uddin said. “This will lead to a firm outlook from the Swiss National Bank when it next meets on Sept. 16.”

UBS ended its recommendation to sell the euro against the franc. Investors should buy back the common currency at 1.2868 francs, as the euro is near the target of 1.2800, UBS said.

The euro was at 1.2905 francs from 1.2871 francs yesterday, when it dropped to a record low of 1.2852 francs.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net

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