Reuters Poll Reveals $1.20 Sterling Slide In No Deal-Brexit Scenario

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A poll that was conducted by Reuters among foreign exchange strategists predicted that the sterling would lose approximately 9 percent of its current value against the dollar and trade at $1.20 in the immediate aftermath of the United Kingdom leaving the European Union without a deal.

However, most economists expect that the two sides will eventually agree on a free trade deal, and the medians in the Feb 28-March 5 poll of more than 60 strategists said that cable would be at $1.32 at the end of the month as the divorce is set to take effect – close to the $1.314 that it was hovering around last Wednesday.

The poll discovered that within a period of six months, the pound will have strengthened to $1.35 and in a year to $1.39. Little changes were noted from a February poll. It is still significantly below that levels it was trading at before the June 2016 referendum vote to withdraw from the European Union.

All of the polls that were conducted by Reuters ahead of that vote correctly predicted that the sterling would decline in the event of the country choosing to withdraw from the European Union.

A separate poll of economists that was conducted by Reuters last Wednesday revealed that the possibility of a no-deal Brexit had dropped to 15 percent. However, one forecaster predicted that the sterling could plunge to as low as parity to the dollar if ever the two sides do decide to part ways without a formal agreement.

PNC Financial Services’ William Adams stated: “Sterling is likely to fall to parity …if the UK does not keep traffic flowing across the channel tunnel, preserve the Good Friday Agreement (with Ireland) and avoid the other negative consequences of a hard Brexit.”

While no other respondents were considered to be that gloomy, even the most optimistic forecast for no-deal cable was a decline to $1.28.

BBVA’s Roberto Cobo Garcia stated: “A disorderly Brexit – for us a very unlikely scenario – would push cable towards the cycle lows of $1.18-$1.20.”

The U.S. Federal Reserve is likely to offer some support for sterling. It is in a holding pattern while the Bank of England is anticipated to increase borrowing costs towards the end of the year.

However, interest rate differentials will provide only a little help for sterling versus the euro