Image © Mike Mozart, reproduced under CC licensing
Going against the crowd, a major global bank is betting on a recovery by Britain's brow-beaten currency.
TD Bank says in its year-ahead strategy pack, released today, that it is a buyer of the pound against the dollar in 2026.
The call goes against a consensus bearish stance on the UK currency.
"Consensus expectations and forwards have moderated GBP optimism due to current fiscal focus," says a note from TD Bank's Securities division.
Just 3% of investors expect the British pound to rise during the course of the next year, according to November's just-released Fund Managers Survey from Bank of America.
TD Securities says the bearish stance on the pound is linked to the upcoming November 26 budget.
"Extremely tight fiscal headroom and topical concerns around long-term productivity and investment in the UK which tend to peak around the budget release," say strategists.
But, "we disagree" on the bearish pound sterling thesis, says TD:
"We expect GBP to eventually recover from its budget-linked underperformance which should peak shortly after the budget release. GBP has a higher beta to improved global growth prospects than some G10 peers like EUR, CAD."
Strategists forecast GBP/USD will head higher towards 1.39 by the end of 2026 on broad USD weakness, improvement in GBP sentiment and positioning, and continued domestic resilience.
TD's modelling finds GBP is undervalued, largely due to the fiscal risk premia around the budget, which is expected to evaporate over the course of 2026.
"We also expect GBP to get a lift from the relative rates channel as our forecast for the BoE is hawkish vs. market pricing whereas it is dovish for the Fed vs what's priced in," say strategists.
Image courtesy of TD Securities.