- The pound could climb as high as 1.53 against the dollar in 2018, according to ING’s Viraj Patel.
- Patel believes that if the UK and EU are able to strike a transition deal for Brexit early in the year, and UK economic data holds up, then 2018 will be a good year for the currency.
- A rise to $1.53 would represent a rise of 13% from current levels and the highest level for sterling since before the Brexit vote.
LONDON – The pound is set for a stellar 2018 and could end the year being worth more than it was prior to the Brexit vote in 2016, according to Viraj Patel, an FX strategist with Dutch lender ING.
A combination of factors could contribute to a major appreciation in sterling over the next 12 months, with the currency possibly gaining as much as 11% from its current level against the dollar to trade as high as $1.53.
That would represent its highest level since the Brexit vote, and be around 3.5% higher than the pound was the day before the referendum.
“The conviction is for cable at $1.40 based on a one-off positive reappraisal of the U.K. economic story and BOE,” Patel said in comments cited by Bloomberg.
“Then we’d expect some stability in the $1.40s, before late-cycle dollar weakness takes cable back toward the $1.50 level.”
Effectively Patel believes that if the UK and EU are able to strike a transition deal for Brexit early in the year, and UK economic data holds up, then 2018 will be a good year for the currency, especially when it is likely that the dollar will struggle during 2018, exacerbating the pound’s gains.
“We look for GBP to be one of the primary beneficiaries of reduced policy uncertainty – at least in the early part of 2018. Approval to proceed to Phase II of Brexit should prompt a brief re-rating of the UK economic cycle,” according to an overview of ING’s currency forecasts for 2018 by Chris Turner, ING’s head of currency.
“Politicians moving away from seeking to protect their own domestic interest (the Prisoner’s Dilemma scenario) – and slowly moving towards a mutual agreement – is unambiguously positive for GBP,” Patel wrote back in December.
“For example, while agreeing a ‘divorce bill’ has little economic significance for the price of GBP, the political significance of progress in Brexit talks is quite profound – not least as it reduces the tail risk of a ‘No Deal’ scenario and a complete breakdown in negotiations,”
While Patel is more positive than most on the pound’s likely progress in 2018, his approach is pretty similar to most forecasters this year.
In a survey of 11 analysts and strategists by Business Insider at the end of 2017, most held similar views on sterling – namely that the pound’s fortunes are set to be inextricably linked with how Brexit negotiations progress as the year goes on.
As one economist put it: “Good news, sterling goes up. Bad news, sterling goes down.”