Abu Dhabi, UAETuesday 21 May 2019

British pound likely to strengthen against all G-10 currencies in 2019, Goldman says

Sterling has strengthened for five straight weeks

A red London bus is driven over Westminster Bridge past the Houses of Parliament in central London. The British pound firmed against the dollar and euro. AFP
A red London bus is driven over Westminster Bridge past the Houses of Parliament in central London. The British pound firmed against the dollar and euro. AFP

The pound may advance against all its Group-of-10 peers this year as the risk of a no-deal Brexit has been declining, according to Goldman Sachs Group.

Sterling has strengthened for five straight weeks as the defeat of Prime Minister Theresa May’s Brexit plan last Tuesday was seen boosting the prospects of a second referendum that may result in the UK staying in the European Union. The premier is expected to present a new proposal to Parliament Monday.

“We would read the developments over the last week as pointing toward a later, softer Brexit or potentially no Brexit at all,” Zach Pandl, co-head of global currency and emerging-market strategy at Goldman Sachs, said in an interview on Bloomberg Television. “We think it’ll be the highest-performing G-10 exchange rate this year,” he said of the pound.

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The pound will appreciate more than 5 per cent by year-end to $1.36, which would make it the third-best performing G-10 currency in the period, according to a Bloomberg survey of economists and strategists.

At the same time, sterling has the most bearish skew in its option prices, as measured by three-month risk reversals, suggesting investors remain concerned over potential downside risks.

There’s little prospect of cross-party Brexit talks yielding a workable alternative to the plan that Parliament rejected last week, Prime Minister May told her Cabinet on Sunday, according to two people who were on the conference call. The pound dropped 0.1 per cent to $1.2859 in early Asian trading on Monday.

“There is still plenty of uncertainty, but we think there are a lot of upside risks to the pound,” Goldman’s Pandl said.

Updated: January 21, 2019 04:14 PM

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