NEW YORK (Reuters) - Sterling is set to plummet by double-digits by the end of the year on slowing UK economic growth and the likelihood the Bank of England will hold off raising interest rates, said Guy Petcho of Voya Investment Management.
Petcho, global macro portfolio manager for the $213 billion investment firm, said in an interview that sterling was set to fall about 15 percent from its level on Friday of around $1.2960 to $1.10 GBP=.
The former Soros Fund Management analyst said second-quarter UK economic growth would likely be weak at slightly below 1 percent on an annualized basis. Petcho, who is based in Atlanta, expected total 2017 growth to be a modest 1.5 percent, making it unlikely the Bank of England (BoE) would proceed with raising rates. He cited weak wage growth and depreciating home prices as two sources of concern.
“The result going forward is certainly bad for pound-sterling,” Petcho said.
Petcho, who said he had been bullish on sterling before last month’s UK election, said Voya had “expressed a negative view” on the currency immediately after the shock loss of British Prime Minister Theresa May’s parliamentary majority.
He said the negative call was being implemented in the roughly $480 million Voya Global Bond Fund (IGBWX.O) and the $197 million Voya Strategic Income Opportunities Fund (ISIAX.O). Petcho declined to specify whether the firm had bet against or “shorted” the currency.
Sterling fell earlier this week from a 10-month high against the greenback of $1.3125 after data showing British inflation unexpectedly slowed in June. The data doused expectations that the BoE might soon raise interest rates for the first time in a decade.
Petcho also said he expected the euro to fall about 7.5 percent from Friday’s nearly two-year high of above $1.1680 to $1.08 by year-end. The euro has rallied in the past two sessions after European Central Bank President Mario Draghi abstained from talking down the currency on Thursday.
The ECB chief’s apparent lack of concern about the strengthening euro convinced traders that the central bank remained on track to at least announce a tapering of its bond-buying stimulus in the autumn, analysts said.
Petcho said, however, that any tapering announcement would likely disappoint traders hoping for a hawkish move by showing a more moderate bias, while second-quarter European economic growth was poised to come in at a modest 1.5 percent annualized.
“The euro also looks quite ripe for a depreciation,” he said.
Reporting by Sam Forgione; Editing by Andrew Hay