February 8, 2018 / 1:34 AM / 10 months ago

Sterling's stellar surge is over, say FX dealers - Reuters poll

LONDON (Reuters) - Sterling’s big rise this year - including its strongest monthly rally since 2009 in January - is over, and concerns over Brexit will start weighing the currency down again, a Reuters poll of market strategists showed on Thursday.

UK pound coin plunges into water in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic

The pound is down around 10.5 percent on a trade-weighted basis since the June 2016 referendum when Britain voted to leave the European Union. But it is up about 6.5 percent from the low point it reached in October 2016.

Compared with equity markets, currencies have remained relatively calm in the last few days. Although sterling fell for the fourth straight day on Wednesday, it was still trading around $1.39. Only one strategist polled last month had anything higher than $1.38 for their one-month forecast.

But as in other recent monthly Reuters polls, the pound is expected to move little over the forecast horizon. It will trade at $1.40 in a month, $1.39 in six months and back at $1.40 in a year, according to the median view from more than 60 foreign exchange specialists polled in the past week.

Still, the latest forecasts mark a sharp upgrade from a January poll following the pound’s recent ascent.

“The pound has been well-supported this year, largely on the back of stable monetary policy expectations. Looking ahead, we believe the risk of deteriorating fundamentals will remain, while Brexit-related uncertainty might rise again,” analysts at Credit Agricole noted.

A disorderly Brexit as a result of Britain misjudging the “self-preservation” instincts of the EU could lead to a further downgrade of the UK’s sovereign credit rating, S&P Global said on Monday.

Last year, a succession of Reuters polls showed that a disorderly Brexit would be the worst outcome for both Britain’s economy and sterling. But negotiations were expected to result in an EU-UK free-trade deal.

The EU’s chief Brexit negotiator Michel Barnier bluntly told Britain on Monday the time had come for London to make a choice on what sort of relationship it wanted with the bloc after Brexit.

But dissent within Prime Minister Theresa May’s ruling party means it remains very unclear just what sort of post-divorce deal Britain is looking for.

“Investors should expect a bumpy path towards an eventual Brexit transition deal between the UK and its EU partners,” Goldman Sachs told clients.

Britain’s economy slowed sharply in January, according to a survey that cast doubt on growing expectations among investors that the Bank of England might be gearing up to raise interest rates again in coming months. [GB/PMIS]

A Reuters poll last month said the Bank would wait until at least October before raising borrowing costs - and then only by 25 basis points. None of the 75 economists surveyed expect any change to policy on Thursday. [ECILT/GB]

In contrast, euro zone businesses began 2018 by increasing activity faster than at any time in well over a decade, in welcome news for the European Central Bank as it gradually moves away from ultra-easy monetary policy. [EUR/PMIS]

It is expected to stop buying tens of billions of euros a month of government bonds by the end of the year, but should do so much sooner, a majority of economists polled by Reuters last month said. [ECILT/EU]

Against the euro the pound is also expected to hover around current levels. In unchanged forecasts from January, a euro will be worth 88.0 pence in one month and 89.0p in six months and a year.

It was trading around 88.9p on Wednesday.

(Other stories from the February Reuters global foreign exchange poll:)

Polling by Sarmista Sen and Indradip Ghosh; Editing by Hugh Lawson

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