(Bloomberg) -- After setting fresh three-decade lows for two days running, the pound is finally getting some respite.
Sterling rallied following a 2.7 percent slide versus the dollar on Tuesday through Wednesday. The rebound comes a day after the U.K. currency sank to its weakest level since 1985 as property funds with more than 15 billion pounds ($19.5 billion) of assets froze withdrawals in the wake of Britain's June 23 vote to leave the European Union. Their decision echoed the real-estate tremors at the start of the financial crisis in 2007.
“We're just taking a bit of a breather,” said Simon Smith, research director at FXPro Group Ltd. in London. “Naturally, the move on cable has been pretty sharp,” he said, referring to the pound-dollar rate. “It's very hard to see it moving in a straight line.”
The pound jumped 0.7 percent to $1.3024 at 12:50 p.m. in London, having touched a 31-year low of $1.2798 on Wednesday. It climbed against all but two of its 16 major peers and strengthened 0.9 percent to 85.03 pence per euro -- the biggest gain since June 20.
A Bloomberg gauge of the U.K. currency versus major peers rose 0.8 percent, ending five days of declines. The Pound Index is still down 12 percent since the referendum.
Pessimism Builds
Almost all the analysts who've changed their forecasts since the vote two weeks ago expect the pound to remain weak. Of the 51 new predictions in a Bloomberg survey, all but six are for sterling to end the year at or below $1.30, with the most bearish -- Julius Baer Group Ltd. -- foreseeing a drop to $1.16.
“We expect a protracted period of currency underperformance as investors continue to position for the new post-Brexit reality,” Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA's corporate and investment-banking unit in London, wrote in a client note. “That said, some negatives seem to be already in the price and we suspect that the currency selloff may slow down from here.”
Credit Agricole sees the pound ending the year at $1.29, about a cent below current levels.
While the pound has borne the brunt of investors' anxiety about the nation's economy since the Brexit vote, U.K. government bonds have been insulated by speculation about an interest-rate cut from the Bank of England's Monetary Policy Committee to contain the fallout, as well as potential new asset purchases.
Record Low
The Debt Management Office sold gilts due in 2026 at a record-low yield of 0.912 percent, two days after a five-year sale also achieved an all-time-low yield. The bid-to-cover ratio of Thursday's sale of 2.33 -- a gauge of demand -- was the highest since January 2013. The U.K. is due to sell 131.5 billion pounds of gilts in the 2016-17 fiscal year.
“We expect the U.K. economy to slow due to the uncertainty of the effect from Brexit and for the Monetary Policy Committee to react with rate cuts and quantitative easing as already flagged” by BOE Governor Mark Carney, said David Zahn, head of European fixed income at Franklin Templeton Investments in London. “This should mean continued support for gilts.”
To contact the reporters on this story: Marianna Aragao in London at mduartedeara@bloomberg.net, Justin Yang in London at jyang538@bloomberg.net. To contact the editors responsible for this story: David Goodman at dgoodman28@bloomberg.net, Paul Armstrong, Lukanyo Mnyanda
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