HSBC Bucks Pound Gloom With Call for 13% Rally by End of Year

  • Bank raises its sterling forecast to $1.60 from $1.50
  • Base scenario is for Britain to remain within EU: HSBC

Britain’s biggest bank is calling for the pound to rally.

As sterling languishes at its lowest level since 2009, hurt by everything from a dovish Bank of England to the risks of an exit from the European Union, HSBC Holdings Plc boosted its year-end forecast for the beleaguered currency to $1.60 from $1.50 previously.

While the full details of Britain’s EU referendum, including the date itself, have yet to be defined, HSBC said its base case scenario is for the U.K. to vote to remain in the bloc this year, and so supercharge a rally in the currency.

The bank’s prediction stands out against a slew of cuts to sterling forecasts in recent weeks. JPMorgan Chase & Co. and ING Bank NV now predict a drop to $1.32 by the end of June, and Credit Suisse Group AG sees a slide to $1.40 in three months and to $1.33 in a year. The bears join Deutsche Bank AG, the world’s second-biggest currency trader, which last year forecast a plunge to $1.27 in 2016, a level not seen since 1985.

“Assuming our base case is correct, the sizable political-risk premium which has been recently built into GBP will disappear,” HSBC analysts led by global head of currency strategy David Bloom, wrote in a report. “The markets will then focus exclusively on the cyclical story where we believe strong U.K. domestic demand will force the BOE to tighten far sooner than is currently priced in.”

The pound dropped 0.3 percent to $1.4155 as of 3:50 p.m. London time, and earlier touched $1.4080, the lowest since March 2009. The pound last traded at $1.60 in November 2014.