By Jonathan Cable
LONDON (Reuters) – Sterling will get a post-Brexit bounce in the month after if Britain leaves the European Union with a deal but suffer further losses against the dollar in the event of a disorderly departure, a Reuters poll found.
British Prime Minister Boris Johnson made a last ditch offer to the EU on Wednesday to try to avoid a no-deal Brexit on Oct. 31 when the two sides are due to part ways.
But analysts say the market is largely sceptical the EU will agree to Britain’s latest offer and on Thursday EU officials expressed doubt the latest British proposals could yield an agreement before the deadline.
The pound <GBP=> has whipsawed since the June 2016 referendum, largely shrugging off increasingly gloomy economic data and instead buffeted by the onslaught of news about how the two sides will end their more than four-decade marriage.
Reuters polls of economists in the past three years have consistently said a deal would be struck. If that is the case, sterling – which was changing hands for around $1.24 on Thursday – would rally and trade between $1.27 and $1.34, Friday’s poll said.
“A lot of bad news is priced into the GBP so we would expect a relief rally to some extent, if a deal is reached,” said Shaun Osborne at Scotiabank.
In contrast, if Britain leaves without a deal the pound will fall and trade between $1.10 and $1.19. Two respondents said it could reach parity with the greenback – a level not seen before.
“Sterling would come under severe pressure in a no-deal hard Brexit scenario, given the well documented negative consequences the crash out would have on the economy,” said Conor Beakey at AIB.
Median forecasts in the wider poll of around 70 foreign exchange strategists, taken this week, said one pound would be worth $1.22 in a month, $1.25 in six months and $1.28 in a year.
While that strengthening suggests a deal is most forecasters’ base case scenario it is still a far cry from where sterling was trading at ahead of the vote to leave.
Against the euro <EURGBP=> the one-, six- and 12-month forecasts were for 89.2 pence, 89.5p and 88.0p. Those medians were a touch stronger for sterling than in a September poll.
(Polling by Sarmista Sen and Richa Rebello; Editing by Alison Williams)