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Pound’s slide leaves strategists wondering where the bottom lies

by June 28, 2016 General

A vendor counts the British pound at a money changer booth at in Singapore on June 24, 2016. ― AFP picA vendor counts the British pound at a money changer booth at in Singapore on June 24, 2016. ― AFP picLONDON, June 28 — Currency forecasters are struggling to keep pace with the pound’s freefall after it tumbled to a fresh three-decade low yesterday.

Strategists at banks from Goldman Sachs Group Inc. to Bank of America Corp. are scrambling to adjust their sterling calls — only for the currency’s slide following the Brexit vote to frustrate their efforts.

The pound already fell through Goldman Sachs’s three-month forecast, published yesterday morning, and at its weakest point that day was little more than a cent off of Bank of America Corp.’s new year-end outlook. Sterling tumbled 3.5 per cent to US$1.3199 (RM5.39) as of 5.35pm London time yesterday, and touched US$1.3121, surpassing the low on Friday after the UK voted to quit the European Union.

“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 July 23 vote it’s been the most obvious victim of the turmoil spreading through global markets. Its losses yesterday extended an unprecedented 8.1 per cent drop on Friday, and showed that UK Chancellor of the Exchequer George Osborne’s attempts to calm markets failed to cancel out the effects of the political paralysis the result triggered.

Further weakness

Goldman Sachs sees the pound at US$1.32 in three months — almost in line with current levels. It forecasts US$1.34 in six months and US$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 US$1.30, after predicting US$1.59 should the UK vote “Remain.” It sees further weakness in 2017.

HSBC Holdings Plc, Europe’s biggest lender, and BNP Paribas SA 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 US$1.49, from about US$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 per cent drop on a decision to leave the EU. It now expects the pound to fall to about US$1.12 in six to 12 months’ time.

“Ninety per cent 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.” — Bloomberg