Few signs of hope for the Brexit-battered pound

Jake Cordell
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Holiday money sign shows Euro and US Dollar exchange rates
Only holiday makers with short memories will be happy the next time they change up theor slightly-less-precious pounds (Source: Getty)

Sterling could fall further if the UK looks on course for a rocky divorce with the EU, currency analysts have warned.

Forecasters currently expect the pound to move sideways against both the dollar and the euro between now and the end of the year, but after a dramatic few days of trading, speculation over the terms of Brexit will drive the currency for the foreseeable future.

"Sterling can fall further, given the UK's balance of payments vulnerability and likely future constitutional uncertainty," said Roger Hallam, chief investment officer for currencies at JP Morgan. He told City A.M. he saw significant potential of sterling skidding down "if Brexit negotiations go poorly".

Analysts at Societe Generale, Deutsche Bank and Bank of America Merrill Lynch (BAML) were also downbeat on the prospects for the pound.

Baseline scenarios have sterling clocking off for the year at between $1.27 and $1.29 against the dollar. However, the risks of it falling short, rather than climbing higher, are mounting.

In a note out this morning BAML said: "With the chatter increasing around the timing of Article 50, we think the risks are the market is unprepared for an accelerated timeline to the process for exiting the EU."

Read more: Theresa May questions Bank of England's monetary policy

Meanwhile, John Wraith, head of UK rates strategy at investment bank UBS said: "It is only a matter of time before less positive data starts to appear," taking away some of the recent support which has cushioned sterling's slide since the referendum.

The pound dropped below $1.27 for the first time since 1985 today on more rumours over whether the government would move towards a so-called "hard Brexit", taken to mean leaving the Single Market. It recovered in afternoon trading to end the day up 0.2 per cent at $1.2753, although volatility is on the rise after a relatively quiet summer season.

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