The pound’s recent mini-rally will be short lived and there is only pain in the currency’s future, according to a group of senior analysts at Swiss bank UBS.
Speaking on Monday at a briefing on the European equity markets, UBS Investment Bank’s Chief European Economist Reinhard Cluse said that he and the bank’s forecasters believe the pound will hit parity against the euro in the medium term, falling to a level not seen in the history of the single currency.
Further weakness in the pound — which has plunged around 16% since the vote to leave the EU — will not be solely driven by Brexit however, Cluse and his colleagues Nick Nelson and Karen Olney said.
A realignment of the UK’s bloated current account deficit will also see shifts in the currency, Cluse said.
“Our strategists are pricing in more weakness to come. Again, we’ve gone a long way, and yet the uncertainty that the Article 50 procedure is likely to bring further weakness,” he argued.
“And then things like the current account adjustment. It sounds very theoretical, but we believe that the current account will have to adjust, but this is not just overnight, it requires a multi year adjustment process to assert their influence on sterling.”
Asked what this meant for the currency, Cluse said: “We have it reaching parity against the euro.”
That fall will come “by the end of next year,” he added.
Cluse did not provide a forecast for the pound’s performance against the dollar going forward.
Traders and forecasters remain divided on sterling’s future path in 2017, with many seeing further weakness on top of the currency’s near 19% fall since the referendum, while others believe that the pound is now undervalued, and will rise over the course of 2017 as the Brexit picture becomes clearer.
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