The pound may advance against all its Group-of-10 peers this year as the risk of a no-deal Brexit has been declining, according to Goldman Sachs Group Inc.
Sterling has strengthened for five straight weeks as the defeat of Prime Minister Theresa May’s Brexit plan last Tuesday was seen boosting the prospects of a second referendum that may result in the U.K. staying in the European Union. The premier is expected to present a new proposal to Parliament Monday.
“We would read the developments over the last week as pointing toward a later, softer Brexit or potentially no Brexit at all,” Zach Pandl, co-head of global currency and emerging-market strategy at Goldman Sachs, said in an interview on Bloomberg Television. “We think it’ll be the highest-performing G-10 exchange rate this year,” he said of the pound.
The pound will appreciate more than 5 percent by year-end to $1.36, which would make it the third-best performing G-10 currency in the period, according to a Bloomberg survey of economists and strategists. At the same time, sterling has the most bearish skew in its option prices, as measured by three-month risk reversals, suggesting investors remain concerned over potential downside risks.
“There is still plenty of uncertainty, but we think there are a lot of upside risks to the pound,” Goldman’s Pandl said.
Source: Bloomberg Finance L.P.
Chart: Used with permission of Bloomberg Finance L.P.
Trader Georgi Bozhidarov