Pound ‘won’t hit euro parity’

Sterling is likely to drop around 5% against the dollar soon after Britain starts its formal divorce proceedings from the EU, but it is not expected to weaken to parity with the euro, a Reuters poll found.

The pound has also struggled against the euro but only around a sixth of the analysts who answered an extra question said the pound would reach parity with the common currency, according to the survey.

“We don’t think Eur/GBP will fall below parity as the euro is under depreciation pressure as much as sterling,” said Colin Asher at Mizuho Securities.

One euro is worth about 89.9p and in six months it will be 89.7p, the poll found. In a year, a euro will get you 88.7p. 

Since the UK voted on June 23 to leave the EU, the pound has dropped almost 20% against the dollar, a decline that is not yet over, according to the poll of over 60 foreign exchange strategists taken in the past few days.

A few forecasters said the pound may reach or fall below parity with the dollar, the first time anyone has made that forecast in over 20 years of Reuters polls on the currency.

UK prime minister Theresa May has said she intends to trigger Article 50, which starts the two-year countdown to Britain leaving the EU, before the end of March, and the median forecast suggested that , after she does, the pound would fall to $1.15.

“Next year, we see the economy holding up somewhat better than some commentators still fear, while hopefully we should get a little more clarity on Brexit arrangements,” said Chris Hare at Investec, who predicts little downwards movement.

Still, forecasts were generally lowered in the latest monthly poll from an October survey after the pound had a torrid few weeks, falling to a 31-year low, which while a boon for exporters means inflation is likely to rise rapidly.

With inflation expected to rise above the Bank of England’s target next year, the central bank is not expected to ease policy tomorrow, with the UK’s bank rate is already at a record low of 0.25%.

In contrast, the US Federal Reserve is widely expected to raise interest rates next month, around a year after it last tightened policy.

That would lend additional support to the dollar. The wider poll put the pound at $1.21 in six months and at $1.23 a year from now.

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