Sterling contrarian Neil Staines bets on upswing for UK currency

Strategists have rushed to slash their pound forecasts since the UK voted to leave the EU, but one fund manager is bucking the anti-sterling trend.

Neil Staines runs a long-sterling book at ECU Group, a London-based money manager specialising in foreign exchange.

While 2016 has been a difficult year, he says the tide is turning for Britain’s currency as fears over Brexit are outweighed by political risks in the US and mainland Europe.

“We favour sterling outperformance, not just relative to its peers but also relative to expectations going forward,” said Mr Staines, who sees the pound rallying almost 3% to as high as $1.28 within three months.

“The market is far more negative than we envision the situation coming out” on Brexit, he said.

Mr Staines has not always been so optimistic about the pound. Earlier in the year, he judged “there was a greater chance of Brexit than the market had priced, and that the balance of risks” was to the downside.

That led him to stay on the market’s sidelines until last month, when he “saw value” in sterling.

The pound has tumbled 16% since the June 23 referendum when the UK voted to quit the world’s largest trading bloc — the biggest decline of any major currency.

Concern that a drop-off in investment will make it hard for the UK to fund its record current account deficit has prompted forecasters to cut the median first-quarter estimate in a Bloomberg survey to $1.23, down from $1.49 on the eve of the vote.

Donald Trump’s accession to the US presidency, as well as Italy’s December 4 referendum on constitutional reform and French and German elections next year, are helping shift attention away from Brexit.

Add to that increased expectations of an interest rate increase by the Bank of England next year, and the pound is looking like an increasingly good bet, according to Mr Staines.

He said he is “much more negative on the eurozone” and sees the euro-pound pair as the best way to trade the currency.

Sterling has rallied against the euro, reaching a two-month high of 84.89 pence against the euro on Monday, before falling back. It was trading at 85.3 pence yesterday.

Bloomberg