The investment team at Coutts is increasing its allocation to sterling on expectations the currency will strengthen despite the political risk presented by a potential 'hard Brexit'.
Alan Higgins (pictured), head of portfolio management and construction at Coutts, pointed to "the booming UK economy" and sterling being a "mean reverting currency", given it always returns to its historical average after hitting extremes in price.
Higgins said: "When we combine the valuation level of sterling together with the political risk, what we see is value in this mean reversion trade."
The pound has fallen more than 15% against the US dollar since the EU referendum on 23 June, but the investment team at Coutts believes the currency is set for a comeback.
With this background, the team is looking to take profit on some overseas investments and re-invest the proceeds in sterling-denominated assets, while still maintaining a diversified portfolio.
Mohammad Syed, head of financial advice and investment solutions, said: "Since the UK voted to leave the European Union, dark clouds have formed over sterling.
"However, our investment principles of long-term thinking and a willingness to focus on quality assets at a sensible price to find good value, lead us to view sterling in a different light.
"Concerns over the UK's current account deficit are, in our view, overplayed and the deficit should begin falling soon. We only have to look at the market's love of the dollar and remember that the US has run a trade deficit every year since 1975, to support our optimism for sterling."
Sterling soars as May gives 'welcome clarity' on Brexit negotiations
Sterling slid below $1.20 at the start of this week as Prime Minister Theresa May signalled a tough stance with the EU, the first time since October's 'flash crash' when the UK currency tanked 6% to $1.14 in minutes.
However, May's clarity in her Brexit speech on Tuesday seemed to boost the pound, which spiked 3% to $1.2382, its best day since the 2008 financial crisis. It was trading at $1.2327 by Thursday afternoon.
May announced in her speech the UK will exit the single market, which is predicted to have a major effect on trade and therefore on the pound.
Since the UK voted to leave the EU, the British currency has plummeted 20%, however, Higgins does not see trade as a major halting block for a sterling rebound.
Sterling falls to lowest levels since 'flash crash' as May signals 'hard Brexit'
"Trade is not everything, as shown when the UK had a trade deficit when the pound was at $2.00. We recognise the political risk with a sterling trade but we predict Brexit will not define the pound's level," he said.
