result would have little effect on sterling.
Having fallen
as much as 23 percent after last June's European Union membership referendum to
touch a 31-year low of $1.1491 in October, sterling is now about 14 percent
lower against the dollar, trading at $1.29 earlier on Wednesday.
Sterling hit a
seven-month high last week as traders closed off heavy bets against the pound.
Short positions on the pound were close to record highs, making "short
squeezes" -- when traders close out those positions, pushing up the value
of the currency -- more likely.
Medians in the
poll of over 60 strategists, taken in the past week, showed sterling would be
worth $1.27 in a month -- just before the general election -- but then weaken
to $1.24 in six months before settling at $1.25 a year from now.
Predictions
for a landslide win are in line with opinion polls and those latest sterling
forecasts were little -changed from an
April poll. But highlighting uncertainty, the range of 12-month forecasts was
$1.11 to $1.39.
Against the
euro, the pound will follow a similar path. In a month one euro will be worth
85.0 pence, in six months 87.8p and in a year 87.0p. Again, those forecasts
were little changed from April.
Growth in the
currency bloc will be steady but modest in the coming year, an April Reuters
poll of economists showed, although that forecast was partly contingent on
independent candidate Emmanuel Macron winning the French presidency this
weekend. [ECILT/EU]
Solid growth,
coupled with higher inflation, means pressure is mounting on the European
Central Bank to start dialing back its still-aggressive stimulus. But it kept
its policy stance steady last week, even leaving the door open to more easing.
While markets
expect the ECB to tone down the language in June, removing a bias for further
easing, ECB President Mario Draghi gave no hint of such moves on Thursday, only
venturing to say economic risks have receded.
The United
States Federal Reserve, which has already tightened policy, is expected to
raise interest rates twice more this year. In contrast, the Bank of England is
not expected to do anything until 2019 at least. [ECILT/US] [ECILT/GB]
As there is so
far little clarity on how divorce talks between Britain and the European Union
will progress, investors may instead return to looking at monetary policies.
"Last
year, cable fell a long way below the level implied by its formerly close relationship
with expectations for the differential between official interest rates in the
UK and U.S. over the next two years," said Samuel Tombs at Pantheon
Macroeconomics.
"This
decoupling seemed to reflect Brexit fears, which could not be fully encapsulated
in short-term interest rate expectations. But last week, this gap closed
completely; sterling now is back to the level implied purely by interest rate
expectations."
MAY'S JUNE
LANDSLIDE
Thirty-two of
52 strategists who answered an extra question predicted a landslide
Conservative win on June 8 and 18 a moderate win. Only two predicted a moderate
Labour Party victory and none a landslide Labour win or a hung parliament.
According to
the median forecast of those who answered the extra question, sterling would
rally 1.0 percent against the dollar but dip 1.25 percent against the euro in
the immediate aftermath of an overwhelming victory for the Conservatives.
Three recent
opinion polls showed a rise in support for Britain's opposition Labour Party
but Prime Minister Theresa May's Conservatives maintained a commanding lead
ahead of the election, expected to define the terms of the country's EU exit.
May has said
she expects divorce talks to be tough after EU leaders agreed stiff terms and
voiced alarm at "illusions" in London that may wreck a deal.
If opinion
polls and the strategists are right, May will win a new mandate for a series of
reforms she wants to introduce in Britain -- and also a vote of confidence in a
vision for Brexit which sees the country outside the EU's single market.
"It will
likely give Theresa May the ability to pass domestic legislation with less
uncertainty and, more importantly, the flexibility to negotiate the terms of
Brexit without fear of being undermined," said Jordan Rochester at Nomura.
Previous
Reuters polls have shown the pound's fate hangs on the tone of the Brexit
negotiations. If the divorce negotiations turn fractious, sterling will fall,
conversely if talks run smoothly, the forecast was for it to bounce.
*Reuters*
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