(Bloomberg) -- This will be the year the pound shakes off its blues and returns to pre-Brexit levels, according to the currency's most bullish forecaster.
An early Brexit transition deal and positive economic data surprises could boost sterling's fortunes and even drive a Bank of England interest-rate hike in the first half of the year, according to Viraj Patel, a foreign-exchange strategist at ING Groep NV, which sees the currency gaining to $1.53 by year-end. The Dutch bank isn't the only positive one on the pound, which tops the buy list of Bank of America Merrill Lynch and Nomura International Plc.
ING sees the currency, which gained nearly 10 percent versus the dollar last year, climbing to $1.40 in the next three months and ending 2018 nearly 3 percent above its close on the day of the June 23, 2016 vote to leave the European Union. That compares to a median Bloomberg survey forecast of $1.33 this quarter and $1.35 by year-end, little changed from current levels.
“The conviction is for cable at $1.40 based on a one-off positive reappraisal of the U.K. economic story and BOE,” said Patel in emailed comments. “Then we'd expect some stability in the $1.40s, before late-cycle dollar weakness takes cable back toward the $1.50 level.”
The pound gained 0.2 percent to $1.3548 as of 9:55 a.m. London time, after data showed the U.K. services sector performed better than expected in December.
Money markets aren't pricing another BOE hike until February 2019, yet Patel sees the agreement of a Brexit transition deal in the first quarter and resilient economic data leading to the repricing of central bank policy expectations. European Union experts say a transition deal allowing the U.K. to continue trading with the bloc may be agreed by March.
To contact the reporter on this story: Charlotte Ryan in London at cryan147@bloomberg.net.
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, Keith Jenkins
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