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Pound May Surge to $1.43 If Brexit Hurdles Cleared, NatWest Says

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.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Anil Varma, Scott Hamilton

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