The Daily Star (Lebanon)

Pound could rally 2 percent if May, EU clinch handshake

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The pound may surge toward a fivemonth high if the U.K. and the European Union agree on a divorce deal this week.

The currency could gain more than 2 percent to $1.35 if British Prime Minister Theresa May and the EU’s chief negotiator Michel Barnier shake hands on a deal at a crucial summit Wednesday. Strategist­s, however, don’t expect a return to preBrexit levels above $1.40 since the “fudge” nature of a likely agreement and the hurdle of getting it through Parliament will limit any rally.

“We do seem to be nearing a junction in the road and a long road it has been,” said Luke Hickmore, a senior investment manager at Aberdeen Standard Investment in Edinburgh. “I would love to say we see a $1.40 handle again, however there will still be a lot of talking to do, so it most likely tops out around $1.35.”

A combinatio­n of dollar weakness and positive news around Brexit

The pound has shaken off some of this year’s losses in recent weeks on a combinatio­n of dollar weakness and some positive news around Brexit. If any deal is agreed, the market is likely to look ahead to the next hurdle of getting it through Parliament, which reports suggest could be challengin­g.

Any pound rally is conditiona­l on a deal being struck early, and being “politicall­y viable” for both the U.K and the EU, said ING Groep NV strategist Viraj Patel. He sees the currency drifting up toward $1.34-$1.35, with the potential for a further rally to $1.37-$1.38 if the dollar weakens and external geopolitic­al risk fades.

In the longer-term, a significan­t recovery in sterling will be dependent on a successful Brexit outcome and further dollar weakness, Patel added. This could send it to $1.45, he said.

“There’s no reason why the pound can’t punch above its weight next year if things go smoothly for Brexit and the dollar cycle finally continues on its downward trajectory. Two big — but monumental — ifs.” – Bloomberg News

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