Investors’ improving perception on Brexit to drive British pound
KUALA LUMPUR: Looking closely at the United Kingdom election and the highly-divided opinion polls, Standard Chartered (StanChart) said investor perceptions of the incoming government’s Brexit strategy could be a key driver of the British pound.
StanChart expects the Bank of England to take a wait-and-see approach, and this dovish stance would be in contrast to the United States Federal Reserve (Fed) and European Central Bank (ECB), and this in turn would be negative for pound against the euro and the US dollar.
“We expect a decline in poundUS dollar to 1.24 and a rally in euro-pound to 0.90 by end of this year, with downside risks to these forecasts,” the bank wrote in its Global Research paper from its On-the-Ground series.
Standard Chartered said the UK government might not agree with the EU’s planned sequence for Brexit negotiations, “insisting that trade talks take place before finances are finalised”.
It warned that there is a risk for talks to blow up, either temporarily or permanently.
“The UK will leave the EU in March 2019, whether or not a trade deal is on the horizon or a transition agreement is in place,” said the British multinational banking and financial services company.
Peering at the polls, Standard Chartered said the higher
turnout among young people appeared to have boosted Labour’s vote, undermining the Conservatives’ lead.
“Having started the campaign with expectations of a sizeable majority, Prime Minister Theresa May’s authority has been damaged, possibly fatally. The outlook is uncertain, with a Conservative leadership campaign, and even a second election, possible."