October 6, 2017 / 7:09 AM / in 10 months

Sterling to coast as it rides out Brexit waves - Reuters poll

LONDON (Reuters) - Market speculators are likely to keep their sterling positions steady this month, according to a plurality of respondents in a Reuters poll which predicted the currency will trade around where it is now against the euro and dollar in a year.

FILE PHOTO: British Pound coins are seen in this picture illustration taken January 18, 2017. REUTERS/Dado Ruvic/Illustration/File Photo

Sterling GBP= was hammered after Britain's decision to leave the European Union and is around 13 percent weaker against the dollar compared to before the June 2016 referendum. Some say it may have already passed its nadir.

The currency made its steepest monthly gains in two years in September, buoyed by speculation the Bank of England will hike interest rates next month and after Britain’s Brexit secretary said “considerable progress” had been made in EU divorce talks.

But this month, sterling has slipped a little after a string of data showed the British economy struggling to gain momentum, at odds with the BoE’s more rosy outlook, and as traders took profits from September’s rally.

At its November meeting the BoE will raise interest rates for the first time in a decade, according to economists in a recent Reuters poll, which is likely to support sterling in the near term. However, most of them also said raising rates would be a policy mistake. [BOE/INT]

So sterling positioning is likely to be similar at the end of the month to what it is now, according to 11 of 29 respondents to an extra question in the poll.

“For any major change, some bigger progress in Brexit talks is needed,” said Asmara Jamaleh at Intesa Sanpaolo.

Prime Minister Theresa May tried to use a speech on Wednesday to unite her party as divisions over Brexit have come to the fore with what is seen as a challenge by her foreign minister, Boris Johnson.

Instead, her bid to reassert her dwindling authority was marred by a calamitous keynote speech interrupted by repeated coughing fits, a prankster and letters of her party’s slogan falling off the backdrop.

With little clarity on how the Brexit negotiations will pan out, strategists were divided on how investors’ positions would be at the end of the month. Six said there would be an increase in net long positioning and seven said a decrease.

“In light of lingering political and economic uncertainties in the UK, we doubt that the market will turn massively long on the pound just yet,” said Roberto Cobo Garcia at BBVA, one of the five people who said there would be a reversal to net short positions.

Currently trading around $1.31, one pound will be worth $1.33 in a month. In six months it will have slipped back to $1.30 before nudging up to $1.31 in a year, according to the poll of nearly 60 foreign exchange specialists taken this week.

Against the common currency EURGBP there will also be little change on those horizons.

Currently one euro will get you about 89.3 pence and the median forecast for one month was 88.8p, for six months it was 89.0p and in a year a euro will be worth 90.0p.

Sterling forecasts were slightly stronger than they were in the September poll.

Polling by Vartika Sahu and Mumal Rathore; Editing by Robin Pomeroy

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