Sterling will hit $1.45 by next year, Morgan Stanley says

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Sterling may have been on a downward trend against the dollar but that's going to change as early as this year, Morgan Stanley has said.

The investment bank estimates that sterling will hit $1.28 for the year end and $1.45 by the end of 2018.

"Our forex strategists have turned bullish on GBP (sterling). This implies a higher probability of U.K. market underperformance and undermines the sell argument for U.K. mid-caps," the bank said in a research note on Tuesday.

"U.K. exporters look vulnerable relative to domestic stocks and companies in real estate and financial sectors," it added.

Sterling was trading at $1.21 on Wednesday morning, as investors waited to hear from the U.K.'s finance minister on his latest budget plan.

In February, UBS made similar bullish comments on the sterling. The Swiss bank believes the pound will edge up against the dollar despite Brexit talks and reach $1.30 by the end of 2017.

Furthermore, Morgan Stanley forecasts the euro against sterling at 0.76 at the year end and at 0.72 by the end of 2018. At the time of writing, euro/GBP stood at 0.86. The bank's forecasts are based on interest rate differentials and political uncertainty across the euro area.

In a scenario of a stronger pound, the investment bank said that Lloyds, Aviva, Prudential, B&M and St James's Place are more likely to benefit from a stronger sterling against the euro.

On the other hand, Bunzl, Coca-Cola HBC, Sage and Aveva stocks would lose the most.