(Bloomberg) — The pound has hit the highest level since the Brexit vote in 2016, yet JPMorgan Chase & Co (NYSE:). remains relatively glum on its prospects.
While recent Brexit developments have been constructive, the bank sees sterling failing to maintain its strength amid flagging economic fundamentals and a “non-negligible risk” that Brexit talks collapse. It sees the pound falling to $1.30 by March 2018, compared with a median forecast in a Bloomberg survey for $1.33.
Brexit “still has the potential to drive large and potentially abrupt movements in sterling, albeit this shouldn’t completely overshadow more prosaic fundamentals,” wrote strategists including Paul Meggyesi in a research note. “And on this front, conditions have moderately deteriorated for the pound as the U.K. economy is being left behind as the rest of the world powers ahead.”
The pound has been supported by the Bank of England’s tightening policy, said Meggyesi, who sees two more interest-rate hikes this year versus the market’s current pricing for one by November 2018. However, the rate cycle is “inherently bad news” as it reflects high inflation and low growth, he said.
That view contrasts with the currency’s most bullish forecaster ING Groep (AS:) NV, which sees positive economic data and a Brexit transition deal returning the pound to pre-Brexit levels at $1.53 by year-end.
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