BNY Mellon: Pound party over after currency’s charmed 2017

LONDON: The pound may have reached its peak.

Sterling’s appreciation against the dollar in 2017 may not continue as last year’s gains largely reflect weakness in the greenback and investors being wrong-footed by the Bank of England’s hawkish turn, according to Neil Mellor, a currency strategist at BNY Mellon.

With UK inflation expected to slow and Brexit concerns coming to the fore, the pound is unlikely to break much higher this year, Mellor said.

“The pound has led a charmed life and until the issues dogging the dollar are more fully understood then this may continue to be the case,” Mellor said in a research note.

However, “as the UK’s underlying fundamentals head south, the market’s motivation to press on has surely diminished.”

Recent data has served to corroborate doubts about the economy, he said.

A report from Visa earlier this week showed UK consumers curbed their spending for the first time in five years in 2017, while a separate release from mortgage lender Halifax reported that house prices fell for the first time in six months in December.

The UK currency is little changed this year after gaining almost 10% versus the greenback in 2017.

Analysts forecast sterling will slip to US$1.32 this quarter from its current level of about US$1.35, according to the median forecast in a Bloomberg survey, before rebounding to US$1.36 by year-end.