Investors should buy the pound against the euro on speculation the Bank of England will raise interest rates “well before” the European Central Bank, according to HSBC Holdings Plc.
Europe’s biggest bank recommended investors buy sterling with a target of 84 pence per euro, Paul Mackel, director of currency strategy at HSBC in London, wrote in a note today. They should exit the trade if the pound weakens to 88.65 pence per euro, he wrote. A government without a parliamentary majority after next month’s election “should be much less of a shock,” he said.
“There is still upside for sterling despite the expected volatility going into the election,” Mackel wrote. “Post the election, we expect the focus gradually to shift back toward the U.K. economy. We still expect the Bank of England to raise rates this year and well before the Federal Reserve and the ECB.”
The pound gained 0.5 percent to 87 pence per euro as of 2:29 p.m. in London, trading below 87 pence for the first time since Feb. 18. It climbed 0.3 percent to $1.5398, paring its decline against the dollar this year to 4.8 percent.
The U.K. currency strengthened today after a report showed the number of Britons claiming jobless benefits declined in March by more than economists predicted.