Pound set to strengthen even as Brexit risks return, ING says

London

Brexit may be back on the agenda for the pound, but that doesn’t mean the currency will plummet, according to ING Groep NV.

With the UK government set to outline its Brexit vision this week ahead of next month’s European Union leaders’ summit, short-term risk premium is likely to make a comeback, London-based currency strategist Viraj Patel wrote in a note. Still, ING sees the repricing of a hawkish Bank of England acting as a backstop for sterling amid signs investors are focusing more on economic data than politics.

“The short-term risks around key Brexit events have tended to be asymmetric, with a particular propensity for the pound to sharply rebound,” Patel wrote. “In the current environment, we would expect the same risk-reward dynamics — with a favourable outcome, in this case visible progression toward an agreed Brexit transition deal, leading to a sharp snapback in GBP/USD to above $1.40.”

The pound was around $1.38 late Monday, with Patel forecasting it will rise to $1.43 in a month.