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Sterling Predictions

Sterling would rally substantially if Britain leaves the European Union with a deal but weaken further if no we leave without.

After suffering its biggest loss against the euro in two years in May – and also losing ground against the dollar – the pound coasted through June as markets awaited the outcome of a Conservative Party leadership battle to become Britain’s new prime minister.

It is still not clear how, when, or even if Britain will leave the EU, and the results of the two-horse race to become leader due on July 23 could steer that eventual outcome.

Former London Mayor Boris Johnson, the face of the official 2016 campaign to leave the EU, is expected to beat Foreign Minister Jeremy Hunt to the job.

If it’s no deal then one pound, worth around $1.26 on Thursday, will only get you between $1.17 and $1.20 in the month after the two sides part ways, according to the median estimates.

But if Britain leaves with a deal, sterling will rally to between $1.30 and $1.36, the poll found, still well short of where it was trading before the June 2016 referendum decision to leave the EU.

A poll last month suggested the Bank of England would raise Bank Rate next year, but weak economic figures and a speech by Governor Mark Carney on Tuesday have convinced money markets to price in a rate cut over the next 12 months.

By the end of September, the European Central Bank will either cut its deposit rate or ease its forward guidance further by pledging to keep interest rates lower for longer, keeping the euro in check.

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