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More pain for sterling bashers.
The currency has made another run higher against the dollar this morning, gaining 0.26 per cent on the day so far to reach its highest level in seven months at $1.2938, further erasing the dent seen since last October’s flash crash.
The pound has been on the up since prime minister Theresa May called an election for early June. Some investors are encouraged that this will help foster a ‘softer’ Brexit, though not all are convinced, with some suspecting that overly gloomy sellers are giving up on bets that the pound can fall towards $1.10. Lows of around $1.20 have proven tough to crack.
Today, Bank of America Merrill Lynch raised its forecasts for the pound. The US bank now thinks sterling will trade at around $1.25 at the end of this quarter. Previously it had expected the pound to trade 10 cents lower. By the end of this year, it expects the pound to trade at $1.27, from an earlier forecast of $1.19.
The bank said:
Sterling will face Brexit challenges but in our view its day of reckoning has been pushed further into the future. For now, this leaves investors to focus on the traditional drivers for sterling. Commentary from both the EU and UK suggest the prospects for an extended transition agreement are bullish but the ‘can has been kicked’ further into the future and whilst the tail risks have diminished, the broader parameters of the Brexit negotiations remain unchanged.
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