Bet Euro to Fall Versus Pound on ECB, Greece Concerns, UBS Says

By Candice Zachariahs

Jan. 18 (Bloomberg) -- Investors should sell the euro against the pound as concern about the financial situation in Greece damps demand for the 16-nation currency and a recovering U.K. economy boosts sterling, UBS AG said.

The bank also recommended clients sell the Australian currency against that of New Zealand on expectations the Reserve Bank of Australia will pause after raising interest rates at its next meeting on Feb. 2. Europe’s recovery will be uneven and no nation can expect “special treatment,” European Central Bank President Jean-Claude Trichet said Jan. 14.

“ECB’s Trichet was dovish last week and Greece is likely to keep weighing on the euro,” Mansoor Mohi-uddin, head of currency strategy in Singapore at Switzerland’s biggest bank by assets, wrote today in a note to clients. The bank expects “bearish sentiment on sterling to abate as the U.K. economy recovers.”

The pound will also advance as Bank of England Governor Mervyn King and his colleagues pause in their bond-purchase program 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.

The pound traded at 88.27 pence per euro as of 6:28 a.m. in London after climbing to 88.04 pence today, the strongest level since September.

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 today.

“The RBA will only hike once more in February and then pause until the third quarter,” Mohi-uddin wrote in the note. “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.”

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net