LONDON (Reuters) - Sterling will not fall as much as previously expected thanks to the prospect of a softer Brexit, currency analysts at Deutsche Bank said on Friday, raising their forecasts for the currency but maintaining a broadly gloomy outlook for the UK economy.
They expect the pound to fall as low as $1.14 next year from $1.28 currently, compared with their previous forecast of $1.06 by the end of this year.
Although Prime Minister Theresa May’s call this week for a snap general election on June 8 was a “game changer” for sterling, Britain’s departure from the European Union means the country’s economic fundamentals will remain weak.
“Politics will cease to be the only dominant driver of sterling and fundamentals will matter more. These are far from bullish,” macro strategist Oliver Harvey said in a note on Friday.
“Our new sterling forecast reflects our more optimistic view of the Brexit endgame, but not of sterling fundamentals,” he added, noting Britain’s large current account deficit, slowing growth and ultra-low interest rate environment.
He and his colleagues now see sterling troughing at $1.14 next year, a less bearish forecast than their previous call for $1.06 by the end of this year. They now expect it to trade around $1.30 in the second quarter this year, up from $1.14, and at around $1.20 by the end of the year compared with $1.06.
(This version of the story corrects surname in fourth paragraph)
Reporting by Jamie McGeever; Editing by Catherine Evans