Among the multitude of sterling bears, Barclays Investment Bank is boldly predicting the pound will rally after the UK’s split from the EU has been initiated.
By the second quarter of 2017, the investment bank anticipates sterling will have edged up to $1.30 against the dollar, eventually making its way up to $1.32 by the fourth quarter.
“We expect the triggering of Article 50 to initiate a ‘sell the rumour, buy the fact’ rebound in sterling from historic undervaluation as ambiguity over Brexit recedes,” said head of FX strategy Marvin Barth.
“While the drivers of sterling’s rebound largely are medium term in nature – PPP valuation, long-term equilibrium value, and drawn-out negotiations – so were the factors that led to its sharp depreciation.
“We expect falling uncertainty and a confluence of short-horizon factors – investor positioning, corporate hedging and risks to the monetary policy outlook – to accelerate a rebound in sterling within our forecast horizon, beginning in Q2.”
UBS Wealth Management also remains optimistic about the prospects of the pound on this historic day.
In a note to investors published Monday, the group said the “pessimism [of the pound] looks overdone,” predicting the currency would reach $1.36 versus the dollar over the next 12 months.
There are several reasons why sterling is unlikely to depreciate further over the short-term, explained Geoffrey Yu, head of UK Investment Office at UBS Wealth Management:
“Firstly, sterling by all accounts is fair value currency. Fair value is never a target, mainly an anchor. If we deviate from it too much either to the upside or the downside, then the market has to adjust because prices become too high or too low.
