April 28, 2017 / 9:24 AM / 4 months ago

BAML raises sterling forecast, cites "game-changing" election call

A British ten pound banknote is seen in a photo illustration taken March 16, 2016.Phil Noble/Illustration/File Photo

LONDON (Reuters) - Sterling will weaken far less this year and next year than originally expected, analysts at Bank of America Merrill Lynch said on Friday, citing the 'game-changing' general election British Prime Minister Theresa May has called for June 8.

They still see the pound under selling pressure as the economy faces "Brexit challenges", but have ditched their call for a slide to $1.15 in the coming months and see a high of only $1.19 for the remainder of this year.

"The announcement of an 8th June general election was a game-changing event for sterling," currency strategist Kamal Sharma wrote in a note on Friday. "Sterling will face Brexit challenges but its day of reckoning has been pushed further into the future."

May is expected to win a much larger and more stable majority in parliament, providing a greater degree of stability in the Brexit negotiations and thereby reducing the likelihood of a so-called 'hard Brexit', analysts say.

Sharma and his colleagues now see sterling bottoming out at $1.25 in the current quarter and ending the year at $1.27, compared with their respective forecasts of $1.15 and $1.19 previously.

The currency will end next year at $1.32, higher than the previous forecast of $1.29, they added.

The pound hit a seven-month high against the dollar on Friday of $1.2944

Analysts at Deutsche Bank raised their forecasts earlier this month too, citing the election news as a "game-changer". They were even gloomier than BAML, and had pencilled in a fall to as low as $1.06 before changing their views.

Reporting by Jamie McGeever; Editing by Gareth Jones

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