(Bloomberg) -- The pound’s recent slide may be tempered by the possibility Britain could stay in the customs union after Brexit, according to Bank of New York Mellon Corp.
Sterling has dropped almost 3 percent against the dollar since touching a post-Brexit vote high on April 17, as investors slashed bets on a May interest-rate increase following dovish comments from Bank of England Governor Mark Carney. The U.K.’s exit from the European Union is often seen as a risk for the currency, but hopes of a softer Brexit could rescue the pound from its BOE woes, according to the American bank.
“Just as fundamental support for the pound has taken a knock, Brexit may have thrown up something for bulls to ponder,” said Neil Mellor, a currency strategist at BNY Mellon. “The market has shown willingness to support the government’s progress on Brexit, but there is little doubt that by dispensing with abstruse and protracted negotiations, such a U-turn would be well-received in the market.”
Mellor sees a chance of a short-term rally, though is still bearish on the pound in the longer term. The median forecast in Bloomberg surveys of analysts is for sterling to rise to $1.43 by year-end.
Downing Street Sunday ruled out changing its stance on leaving the customs union, after speculation over the weekend that Prime Minister Theresa May might have to concede on this Brexit ‘red line’.
May’s inner circle thinks she could be forced to accept staying in the EU’s customs union because Parliament will reject her plan to withdraw from it when the issue comes to a vote in the House of Commons, according to one official.
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