Pound Forecasts Face Hatchet as Cracks Emerge in Bulls' Resolve

  • UniCredit sees sterling at $1.50 by end 2016; previously $1.63
  • Global turmoil seen pushing back BOE interest-rate increase

Pound bulls are finding it harder to hold on to an optimistic view.

UniCredit SpA cut its year-end sterling forecast to $1.50 on Friday from $1.63. It’s the first time the Italian bank’s call has fallen below the median analyst projection -- currently $1.51-- in a Bloomberg survey. And until October, it was the second-most bullish contributor.

Britain’s currency has had a rocky start to 2016, falling to a 5 1/2-year low against the dollar on Friday, with the slump in commodity prices and turmoil in China making it harder for investors to see the Bank of England raising interest rates. Sterling depreciated against the euro for a seventh week, its longest losing streak since April 2011.

“Risks for a BOE rate liftoff delay have increased considerably, partly on the back of the further fall in oil prices,” Vasileios Gkionakis, London-based head of global foreign-exchange strategy at UniCredit, wrote in a note to clients. “Despite our bearish view on the dollar, this has led us to revise lower” the forecast, he wrote.

The pound fell 0.7 percent to $1.4519 as of 5 p.m. London time, after sliding to $1.4507, the lowest since June 2010. That left it 1.6 percent lower this week.

Sterling slipped 0.3 percent to 74.98 pence per euro, a weekly decline of 1.7 percent. Danske Bank A/S cut its estimates for the pound on Friday, weakening its three-month forecast to 73 pence per euro, from 70 pence.

Traders and analysts are delaying their calls for a BOE liftoff. Markets are currently pricing in no rate increases in the U.K. until after February 2017, while Goldman Sachs Group Inc. and ING Bank NV this week pushed back their rate-increase forecasts to the fourth quarter of this year, from the second.

‘Brexit’ Risk

A planned referendum on Britain’s European Union membership is also reducing the currency’s allure, with even Banco Bilbao Vizcaya Argentaria SA, which has the strongest forecast in Bloomberg’s survey at $1.70, warning the vote may unleash an “avalanche of negativity” for the pound.

BBVA expects the EU referendum to be pushed out to 2017, and is sticking to its year-end forecast while looking for “a rallying trend by mid-year,” according to Peter Frank, the bank’s London-based global head of Group-of-10 foreign-exchange strategy.

Even so, if the referendum is held this year, “then all bets are off, we are going to be very negative on sterling,” he said. “There is is absolutely no chance, in our view, that sterling won’t fall very hard if Brexit is going to be in June.”

Before it's here, it's on the Bloomberg Terminal.