Morgan Stanley: The pound faces competition from high-yielding currencies.

In a report, Morgan Stanley strategists stated that the performance of the pound may lag behind non-US currencies due to competition from high-yielding alternative currencies and political risks. They indicated that the global macroeconomic environment is becoming increasingly favorable for carry trades, where investors borrow low-yielding currencies to invest in high-yielding currencies. The Bank of England's policy rate of 3.75% remains a key support for the pound. However, investors may seek higher-yielding G10 alternative currencies such as the Norwegian krone and the Australian dollar, while also "closely monitoring the potential increase in pound risk premium related to fiscal and political prospects and UK government bond term premium".