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BAML raises sterling forecast, cites "game-changing" election call
April 28, 2017 / 9:24 AM / 7 months ago

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

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.

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

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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