LDN - Business

Sterling to slip a little further after EU divorce process starts: Reuters poll

[January 06, 2017] By Jonathan Cable

LONDON (Reuters) - Sterling will slip a touch more against the euro and dollar after Britain begins its official divorce process from the European Union, a Reuters poll found, while identifying risks that the falls could be steeper.

The pound <GBP=> has fallen about 17 percent against the dollar since the June 23 vote to leave the EU, trading near $1.24 on Friday, and according to the poll of around 60 foreign exchange strategists surveyed this week it will dip a little further.

In a month's time it will be worth $1.22 but at the end of March, by when Prime Minister Theresa May aims to trigger Article 50 which starts the two-year countdown to Brexit, the poll said cable would be at $1.21.

"In the wake of the very strong UK data the fact that sterling has lagged other currencies slightly against the dollar suggests politics is dominating," said Colin Asher at Mizuho Securities.

"I would expect that to continue probably for most of the year. Sterling will be difficult to predict given the very substantial negative positioning," added Asher, who was the most accurate forecaster of sterling in Reuters polls last year.

There have been no clear indications as to what direction negotiations will take, but many think May will take a hard line on immigration at the potential expense of Britain's access to the single market, hindering trade and further hurting sterling.

So in six months and in a year's time, medians in the poll said cable would be at $1.20.

The dollar rallied in 2016 and that will continue this year on expectations that tax cuts promised by President-elect Donald Trump will force the Federal Reserve to raise rates more quickly. [EUR/POLL]

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A pile of one pound coins is seen in a photo illustration shot June 17, 2008. REUTERS/Toby Melville/Illustration/File Photo

Pound forecasts were lowered a little from a December poll and with no clarity about how the talks will proceed, 17 of 27 people who answered an extra question said risks to their forecasts were negative.

"Risks are to the downside because the Brexit process is uncharted territory. However, if the UK is granted access to the single market, sterling should be able to recover," said Asmara Jamaleh at Intesa Sanpaolo.

While no-one forecast the pound would fall as low as parity with the greenback, a few thought it could go below $1.10. The most optimistic analyst pegged sterling at $1.35 at the end of the year.

Sterling has struggled against the euro <EURGBP=> but only two analysts in the poll thought the two currencies would reach parity.

Medians in the poll said one euro, currently worth 85.5 pence, would get you 85.0p in a month, 86.0p in three months and 87.0p at the end of the year.

(Polling by Shrutee Sarkar and Sarmista Sen; editing by John Stonestreet)

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