What’s Next for the British Pound? 

(Bloomberg) -- Fund managers and strategists are split about whether this week’s optimism about a possible Brexit deal heralds a turning point for the pound. Sterling has surged 4.6% in the past five days as reports suggested the U.K. and European Union are closing on a deal but there are still plenty of obstacles in the way of a final agreement.

The currency may rally to $1.30 if a deal is struck, while Parliamentary approval could fuel a further rally toward $1.40, according to strategists. Conversely, a failure to reach an agreement may see sterling slide back to $1.11, they say.

Here are some comments from money managers and strategists on the pound:

Nader Naeimi, a fund manager at AMP Capital Investors in Sydney:

• “The pound was screaming cheap after long being beaten up by Brexit but things are different now. The discussions are reaching a turning point, and I’m long pound against the yen in a risk-on play”

Stuart Simmons, senior portfolio manager at QIC Ltd. in Brisbane:

• “The developments do look encouraging because all the participants seem to be motivated to do a deal, but we’ve been here before”
• “I’m not touching the pound because the outcome is still way too uncertain. If there is a deal, by year-end, conservatively you can see another 4% to 8% rise in sterling”

Shyam Devani, senior technical strategist at Citigroup Inc. in Singapore:

• “Considering we are on the eve of the summit, the risk-rewards at this stage do not favor the GBP in the short term”
• “With all these moving parts and unknowns, it is smart not to move back to a neutral stance for now”

Sheena Shah, strategist at Morgan Stanley in London:

• “We expect GBP to continue to rally as long as the prospects of the U.K. receiving a Brexit deal and passing the initial bill in parliament stay in place”
• Next technical target is $1.32 or $1.33 for cable, while EUR/GBP may fall to 0.8550 level

Rajeev De Mello, chief investment officer at Bank of Singapore Ltd:

• “There’s interesting opportunities in the pound and also in U.K. stocks”
• “I see the pound as relatively cheap compared to fundamentals and real effective exchange rate measures”

Damien Loh, chief investment officer at Ensemble Capital in Singapore:

• “It looks like yes, a hard Brexit is less likely but whether you get a Boris Johnson deal or a second referendum or election is less clear because its passage through parliament is still quite uncertain”
• “At this current level there’s lots of room for the pound to go either way and the implied vols reflect that”

To contact the reporter on this story: Ruth Carson in Singapore at rliew6@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas Reynolds

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