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HSBC forecasts sterling at $1.10 by end 2017 on Brexit woes
October 7, 2016 / 8:30 AM / a year ago

HSBC forecasts sterling at $1.10 by end 2017 on Brexit woes

LONDON (Reuters) - HSBC said on Friday it forecast the pound to drop to $1.10 and parity against the euro by the end of 2017 as fears of a “hard” Brexit intensify.

“Brexit, whether one likes it or not, is a political decision, one we have to respect,” David Bloom, global head of FX research said in a note. “The currency is now the de facto official opposition to the government’s policies.”

“The argument which is still presented to us - that the UK and EU will resolve their difference and come to an amicable deal - appears a little surreal. It is becoming clear that many European countries will come to the negotiation table looking for political damage limitation rather than economic damage limitation. A lose-lose situation is the inevitable outcome.”

The bank expects the currency to drop to $1.20 by the end of this year from around $1.2432 on Friday.

Sterling dived about 10 percent at the start of Asian trade on Friday, sinking from levels around $1.2600 to $1.1378 in a matter of seconds, before recovering to trade 1.4 percent lower on the day.

“The pound used to be a relatively simple currency that used to trade on cyclical events and data, but now it has become a political and structural currency. This is a recipe for weakness given its twin deficits,” Bloom added.

Reporting by Anirban Nag and Patrick Graham

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