Economy

Sterling to slump on no-deal Brexit, rise a bit on orderly exit – Reuters poll

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Sterling to slump on no-deal Brexit, rise a bit on orderly exit – Reuters poll

Sterling

London, Feb. 6, 2019 (Reuters/NNN) Sterling will gain between 2 and 5 per cent if Britain parts ways with the European Union with a divorce deal, a Reuters poll found on Wednesday.

The poll, however, found that the currency would slide between 5 and 10 per cent in the event of a disorderly Brexit.

Less than eight weeks before Britain is due to leave the EU on March 29, there is still huge uncertainty about the terms of its departure.

Hence fears are rising of a no-deal Brexit without a transition period to minimise economic disruption.

Asked what would happen to sterling if Britain leaves with a deal, strategists were almost unanimous in expecting it to make gains. All of them said the currency would fall if Britain crashed out without a deal.

But the prospective gains were weaker than potential losses.

“The rationale would be that markets are going to wait until the last possible moment to sell off in terms of how a no-deal might materialises. Markets will hold out for a last-minute breakthrough,” said George Brown at Investec.

“If that wasn’t to materialise then you will see a big, sharp depreciation,” Brown added.

The withdrawal agreement Prime Minister Theresa May negotiated with the EU was rejected by the British parliament last month.

London and Brussels are now arguing over whether the deal can be changed, raising the possibility of a delay to Brexit, a last-minute deal or a no-deal exit.

Medians in the wider poll, taken between Jan. 31 and Feb. 5, see the pound making solid gains on the dollar in the coming year, which suggests foreign exchange strategists expect an agreement to be reached.

In one month’s time a pound will be worth 1.31 dollars, in six months 1.35 dollars and in a year it will be almost 8 per cent stronger at 1.40 dollars, according to the poll.

Sterling was trading around 1.297 dollars on Tuesday, having fallen to a two-week low after a private survey suggested the British economy was flat-lining.

Reuters polls of economists have consistently indicated that they expect Britain and the European Union to eventually agree a free trade deal.

In recent months the pound has largely ignored economic data and instead swung wildly on any snippets of news about the Brexit talks.

Reflecting this, strategists said the currency would move in a relatively wide range ahead of the March 29 departure date, between 1.28 dollars and 1.33 dollars.

Some of the longer-term forecast gains will be because strategists have said the dollar’s dominance is over.

With the U.S.Federal Reserve having signalled its three-year drive to tighten monetary policy may be at an end, the greenback may not be supported by interest rate differentials for much longer. (Reuters/NNN)

AOM/SA

Edited by Abdullahi Mohammed/Salif Atojoko

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