Analysts Expect Pound Could Drop To 1.08 By Year End
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- June 25, 2019
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The pound will tumble to levels not seen since 2017 against the euro as Brexit turmoil outweighs a dovish European Central Bank, according to analysts.
Sterling is likely to slide toward 1.0870 against the euro by year-end, about 3% below current levels and a rate not seen in 21 months, according to JPMorgan Chase & Co.
The pound has slumped against the euro this quarter as the risks to Britain’s currency from the contest to replace U.K. Prime Minister Theresa May and October’s Brexit deadline mount.
The slide reflects investors’ scepticism about the Bank of England’s stance that rates may have to rise if the economy develops in line with its forecasts. With momentum slowing around the world, markets are, in fact, pricing in the chance of a BOE rate cut next year.
Sterling has weakened about 3.5% since the start of April.
On Monday, Boris Johnson, the front-runner in the ruling Conservative Party’s leadership race, reiterated he would take Britain out of the European Union without a deal on Oct. 31 if necessary, even as some of his senior colleagues plotted to prevent him doing so. The U.K. Parliament breaks for its summer recess in late July and doesn’t return until early September, meaning the deadlock could continue even after a new prime minister is in place.
“It’s difficult to see how the U.K. political fog clears up quickly, so there is little reason to buy even a cheap pound,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA. “And if the Fed continues to weigh on the dollar, the euro will be the winner by default.”
This environment means sterling shorts versus the euro will likely continue to build, according to Jeremy Stretch, head of Group-of-10 currency strategy at Canadian Imperial Bank of Commerce. He sees the pound weakening to 1.0920 by the fourth quarter.
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