Pound Bear Targets Slide to $1.32 as BOE's Hiking Window Closes

(Bloomberg) -- The pound has gone from currency market darling to pariah over the past month, but things could be about to get worse.

Banco Santander SA expects the currency to continue to slide to $1.32 by the end of the year, a level not seen since November. Sterling has tumbled since reaching a post-Brexit high against the dollar in April as a flurry of weak U.K. economic data pushed investors to price out the possibility of an interest-rate increase by the Bank of England this month.

Services data due Thursday are unlikely to reverse the trend, with the slowing economy meaning “the window of opportunity has probably closed” for the central bank to raise rates and that policy makers will likely stay on hold throughout 2018 and 2019, according to Stuart Bennett, Santander’s head of Group-of-10 currency strategy.

“U.K. data has been surprising to the downside for much of 2018, but until April 17, the market was ignoring it,” said Bennett. “The services PMI looks very important now. There was a big decline in March, so economists assume it will rebound in April. If it doesn’t, sterling will look even more precarious.”

The pound fell as much as 1.2 percent Tuesday to $1.3596, the lowest since Jan. 12. It has slumped more than 5 percent since touching $1.4377 on April 17. The Citi Economic Surprise Index, which measures whether data beat or miss analyst forecasts, touched the lowest level since August last week.

Sterling could get some support if there are positive developments in the Brexit talks by June, but slow growth, no further policy tightening and a stronger dollar mean it will likely remain vulnerable, Bennett said.

©2018 Bloomberg L.P.

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