UBS sees pound bouncing back in 2017
The bank believes that the battered UK currency, recently only just holding above the US$1.20 level, could be trading at US$1.36 by this time next year.
The bank believes that the battered UK currency, recently only just holding above the US$1.20 level, could be trading at US$1.36 by this time next year.
The slump in the value of the pound (GBP) against major currencies such as the US dollar (USD) and the euro (EUR) since the UK’s vote for Brexit on June 23 is not yet over, but 2017 will see sterling recover some ground forecasts UBS.
The pound began this week by slipping below €1.10, a six-year low against the single currency and at less than US$1.21 was at levels against the USD last seen in 1985. However in a memo circulated on Monday, UBS economist Dean Turner argued that having dropped by 20% in less than four months since the decision to exit the European Union (EU), GBP will eventually regain favour with investors.
The UBS prediction is more upbeat than that issued by some other banks. HSBC has forecast GBP parity with EUR by 2017 and Deutsche Bank expects GBP to have slipped further to below US$1.15 before the end of this year.
Turner and his team agree that “the pound’s joyride is probably not over as traders react to every twist and turn of the Brexit debate,” but expect the currency to “stabilise and recover over the next six to 12 months,” and predict that GBP will be trading at around US$1.36 in 12 months’ time. This compares with a pre-Brexit average of US$1.43 in the first half of 2016.
The memo cites four main reasons for anticipating a recovery by the currency: