Pound Strategists Are Left Wondering Where the Bottom Liesby
Goldman Sachs’s short-term forecast has already been surpassed
Sterling heads for first gain since U.K. voted to leave EU
Currency forecasters struggled to keep pace with the pound’s freefall in the aftermath of the vote that sets Britain on course to leave the European Union.
While sterling headed Tuesday for its first daily gain since the June 23 referendum, it tumbled to a fresh three-decade low versus the dollar only a day earlier. Lenders from Goldman Sachs Group Inc. to Bank of America Corp. responded with big cuts to their predictions.
Even so, the pound already fell through Goldman Sachs’s three-month forecast, published Monday morning, and at its weakest point was little more than a cent off of Bank of America Corp.’s new year-end outlook. Sterling touched $1.3121 that day, surpassing the low on Friday. It rose 1.1 percent Tuesday to $1.3367 as of 2:13 p.m. London time.
“Last week’s leave vote was a large surprise for markets -- and for us,” Goldman Sachs analysts led by New York-based chief currency strategist Robin Brooks wrote in a note.
The pound was a key gauge of changing sentiment throughout the referendum campaign and since the historic vote has been the most obvious victim of the turmoil spreading through global markets. Its losses at the beginning of this week extended an unprecedented 8.1 percent drop on Friday, and suggested that U.K. Chancellor of the Exchequer George Osborne’s attempts to calm markets failed to cancel out the effects of the political paralysis the result triggered.
Goldman Sachs sees the pound at $1.32 in three months. It forecasts $1.34 in six months and $1.35 this time next year, before a modest longer-term recovery. Bank of America lowered its year-end outlook in a note on Sunday to $1.30, after predicting $1.59 should the U.K. vote “Remain.” It sees further weakness in 2017.
HSBC Holdings Plc, Europe’s biggest lender, BNP Paribas SA and ING Groep NV were among other banks to lower their sterling forecasts after the vote. The night before the referendum, the median estimate in a Bloomberg survey of more than 50 strategists was for a rally to $1.49, from about $1.47.
Many of the new predictions won’t last long, according to Julius Baer Group Ltd., which before the referendum warned of a 30 percent drop on a decision to leave the EU. It now expects the pound to fall to about $1.12 in six to 12 months’ time.
“Ninety percent of the time, the spot market is the best predictor of future currency levels,” said Zurich-based head of research and chief strategist Christian Gattiker. “In times of crises, which we’re in right now, it’s not. The market is looking for a new fundamental balance.”