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London: The pound has turned from the best-performing currency at the start of the year to the worst this quarter.

Sterling may not fare much better in the next three months, with the UK in the middle of a leadership contest and a growing risk of crashing out of the European Union in October, strategists and fund managers say. Amundi Asset Management thinks the currency is “impossible to forecast” while Commerzbank AG sees it in a downtrend until November.

“Investors reduced pound positions as the risk of no deal increased again and that brought back high uncertainty,” said Andreas Koenig, head of global currencies at Amundi. “There are other currencies that are more driven by economic developments and central bank policies which offer more visibility at the moment.”

The pound fell 2.5 per cent against the dollar in the past three months to trade around $1.27, faring worst among 16 major currencies tracked by Bloomberg. That followed a chart-topping 2.2 per cent gain in the first quarter.

While the Group-of-20 summit this weekend will be closely watched for its implications for trade conflicts and currency markets, the dominance of Brexit in the UK means that Canadian Imperial Bank of Commerce expects the pound to underperform the euro, yen and Swiss franc.

Investors will be watching any headlines from the ongoing Conservative leadership contest, with front-runner Boris Johnson refusing to rule out suspending Parliament in order to force a no-deal Brexit.

There’s also the risk of the Bank of England following global peers and turning more dovish. While policymakers have flagged the possibility of rate hikes if Brexit goes smoothly, money markets are pricing in 10-basis-points worth of cuts in mid-2020. Next week’s economic data is expected to show the manufacturing purchasing managers’ index staying in contraction territory, while services are seen unchanged from the previous month.

BoE Governor Mark Carney acknowledged the “natural tension” between its assumption of a smooth Brexit and market speculation of a potential no-deal in comments to a parliamentary committee on Wednesday. He said the central bank would switch policy if the government did.

“I don’t think that the pound will get a significant reprieve until the beginning of November, as until then uncertainty as regards Brexit is only likely to intensify,” said Thu Lan Nguyen, a currency strategist at Commerzbank. “The real economic situation will also be relevant as many central banks have started to ease monetary policy due to a weaker global outlook. The question arises if the BoE too will be drawn into this, which could in addition weigh on sterling.”