Pound to hover around current levels over next year

By Jonathan Cable

LONDON (Reuters) - Sterling is seen holding around its current 8-month highs against the dollar over the coming year as the British economy eventually emerges from a deep recession, a Reuters poll showed.

The monthly poll of forecasts from over 60 dealers and analysts saw the pound trading at $1.61 in three months. This is above the three-month forecast of $1.57 in last month's poll but down from the $1.64 it was trading at on Thursday.

Most of the responses were collected after revised figures showed the British economy shrank at its fastest pace in over 50 years in the first three months of 2009.

The pound was seen gaining a little strength over the year, at $1.63 in 6 months and $1.62 in a year, higher than the respective $1.55 and $1.61 forecast last month.

"Prospects of more global risk appetite in the future should pave the way to a firmer cable," said Roberto Mialich, foreign exchange strategist at UniCredit and the most consistently accurate forecaster in Reuters polls last year.

Sterling has climbed against the greenback as a powerful rally in world stock markets has prompted traders to dump the dollar in favour of higher-risk currencies.

The pound hit a 23-year low of around $1.35 in January but has since rallied, hitting an 8-month high of over $1.67 on Tuesday.

"The rally in pound/dollar above $1.65 has forced some participants to cover their short positions, but the lack of conviction in stocks and resistance around the 1.66 area could make it difficult for pound/dollar to break higher," said Kenneth Broux at Lloyds TSB.