Battered Pound to Make a Comeback for Nomura on Economic Revival

(Bloomberg) -- The pound may have been beaten into submission in recent weeks, but one bank is keeping the faith.

Nomura International Plc has issued a long pound-dollar trade recommendation on a bet that recent weakness in U.K. economic data won’t continue into the second quarter. It sees sterling rallying 7 percent to $1.46 by year-end.

This optimism has yet to be borne out, with figures Thursday showing the services sector growing at a slower-than-expected pace in April. The pound erased earlier gains following the data miss and reports that Prime Minister Theresa May is facing a crisis as a section of her ministers demanded a clean break from the European Union’s customs system.

Battered Pound to Make a Comeback for Nomura on Economic Revival

“The data surprises in the U.K. are at the lows and for this to continue you’d have to expect a severe economic slowdown,” said Nomura analyst Jordan Rochester, adding stronger data was needed in coming months to confirm his view that the Bank of England is on course for an August interest-rate hike. For the pound, “the best is yet to come.”

Nomura abandoned its call for a May interest-rate hike last week but now sees the central bank delivering a balanced statement at the May meeting before raising rates in August. The Japanese bank is keeping a bearish view on the greenback and recommends entering a long pound-dollar position at $1.3640 with a target of $1.41 and stop level of $1.3480.

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