The outcome of Britain’s December election poses a binary choice for sterling and “anything can happen” according to the largest UK bank.
A result paving the way to a Brexit deal with the EU could send the pound up about 12% to $1.45 by the end of next year, said David Bloom, global head of foreign- exchange strategy at HSBC Holdings.
Or a no-deal Brexit could see it tumble some 15% to $1.10.
“Nothing is priced in,” Mr Bloom said. “The political outcome will determine the future of the currency.”
His comments contrast with traders’ confidence in sterling, fuelled by polls suggesting the Conservatives will defeat the Labour Party on December 12 and secure a Brexit deal that could help end the political paralysis.
The pound is hovering near a six-month high against the euro, while traders are confident prime minister Boris Johnson will maintain his lead, a gauge of expected large moves in the currency suggests.
Any resolution is good, Mr Bloom said, either it be another referendum or a Brexit deal. Political wrangling will start to ebb away, the economy could get a fiscal boost, and the Bank of England could start considering rate increases. The reverse could see recession fears flare.