Pound May Surge to $1.43 If Brexit Hurdles Cleared, NatWest Says
(Bloomberg) -- The pound could revisit this year’s high above $1.43 if Brexit uncertainty is removed, as long-term foreign investors are waiting in the wings to scoop up U.K. assets for their attractive valuation, according to NatWest Markets.
Sterling is undervalued against most Group-of-10 currencies in terms of OECD purchasing power parity. It has fallen 14 percent against the dollar, 13 percent versus the euro and 8 percent to the Japanese yen since Britain voted to leave the European Union in June 2016.
“There’s a lot of pent-up demand among central banks and sovereign wealth funds for the pound as it’s liquid, offers positive yields and has an attractive valuation,” said Mansoor Mohi-uddin, head of foreign-exchange strategy at NatWest. “Also, the U.K. is one of the few major economies, including Canada and Switzerland, that welcome foreign investments on a big scale.”
Yet, any clarity on Brexit remains elusive at this point. While U.K. Prime Minister Theresa May has secured a divorce agreement from the EU, it sparked lawmaker protests and ministerial resignations. A rejection of the deal by Parliament could reignite risks that include a no-deal Brexit, an early election, or even a second referendum.
The pound advanced against all its G-10 peers Wednesday as the market awaits an analysis by the Bank of England on the various possible scenarios of Britain’s exit from the EU.
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