Sterling set to gain ground on dollar after Brexit

STERLING WON’T move much in the run-up to Britain’s departure from the European Union in March next year but will gain ground on the US dollar afterwards, a poll of foreign exchange strategists has predicted.

The pound sank after the surprise June 2016 referendum result when Britons voted to leave the EU.

But three-quarters of over 50 respondents to an extra question said sterling is unlikely to set a new post-Brexit vote low before the UK leaves the EU in March 2019.

The Bank of England will raise interest rates to 0.75 per cent in August, according to a poll last month that also gave only a median 20 per cent chance of a hard Brexit – an outcome that would be negative for sterling.

The US Federal Reserve has already raised rates seven times from near-zero over the past few years to 1.75-2.00 per cent and is expected to raise them twice more this year and several more next year.

“While a rate hike will help provide some support for the pound, the period of Brexit uncertainty (even assuming some progress in July) is likely to persist going forward, which is likely to limit the extent of sterling appreciation in 2018,” noted analysts at MUFG.

“Still, we continue to expect a deal to be reached this side of Christmas which will see a more notable period of GBP appreciation.”