The British pound’s bright start to the year is a distant memory.
Sterling began 2019 in great form, with gains against the US dollar and euro exceeding 5 percent between January and mid-March, and 4 percent against the Australian dollar. Since then, the pound has given back all of those gains and, with the last business day of the quarter now in the record books, is officially Q2’s worst-performing major currency, by some margin.
Amundi Asset Management’s Andreas Koenig told Bloomberg this weekend that Britain’s currency is now “impossible to forecast,” but clearly sentiment has worsened, with Leave-supporting Boris Johnson seemingly a shoo-in to win the Tory leadership race and consequently to become Britain’s next prime minister. A Johnson premiership would raise the probabilities for both no-deal and a 2019 general election, political analysts have said.
The pound’s unfortunate position is, of course, to the benefit of all other major currencies, including the Aussie dollar, which rallied on Friday to a 4-month high of £0.553. The New Zealand dollar achieved the same, at £0.529, and the euro did even better with its quote of £0.899 — the highest in 5 months. At £0.788, the world’s reserve currency, the US dollar, is close to its average rate over the past month.
In all cases, the pound is unlikely to receive much in the way of respite until November, when hopefully the UK-EU Brexit arrangement, or lack thereof, is known (Boris Johnson insists that the UK will not seek any further Article 50 extensions beyond the October-31 deadline).
A number of reputable sources, including the Bank of England, have predicted a sterling collapse in the event of no-deal. Per HSBC’s GBP forecasts, no-deal is likely to send USD/GBP and AUD/GBP soaring towards or beyond £0.9 and £0.6 respectively.
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