Are other analysts as bullish on the pound as Bank of America?

sterling
The City is divided over which direction will the pound go in

Currency experts at Bank of America believe the pound’s post-referendum plunge will be short-lived and no doubt some company bosses, including Ryanair chief Michael O’Leary, will be hoping they are right.

Europe’s biggest airline today revealed an 8pc drop in quarterly profits to €95m after the carrier was hit by sterling’s slump since the June vote to leave the EU.

While exporters have been helped by the pound’s weakness, Ryanair joins a host of other firms, including rivals easyJet and British Airways-owner International Airlines Group, as well as retailer Sports Direct and Mr Kipling cake-maker Premier Foods, that have been hurt by a sell-off that has seen sterling plumb 31-year lows against the US dollar.

As a result, given the carnage it has caused some companies, Bank of America’s bullish assessment of the currency’s prospects will have made for welcome relief.

bank of america
Bank of America, the second-biggest US bank, is bullish on sterling

According to the bank’s strategists Athanasios Vamvakidis and Kamal Sharma, the pound - which is currently trading at about $1.2455 against the greenback - will hit a low of $1.15 before rallying sharply to $1.35 or even $1.40 if London secures a smooth Brexit by agreeing transition arrangements with Brussels. In the long-run, the Bank of America experts say they “doubt that the markets will be in a perpetual state of panic over every Brexit-related headline”.

Other City analysts, however, are not so confident. Kit Juckes, of Societe Generale, told investors today that the pound is “still on track to spend much of 2017 in a $1.20 to $1.25 range” and that in the “near-term” the risk is that it “meanders towards the lower end” of that bracket.

Last week, Deutsche Bank analysts also advised clients to “stay short the pound”. While they agreed with Bank of America that “early clarity on a transitional arrangement between the UK and EU” would be a “key stabiliser for the pound”, they nevertheless believe such a deal “seems unlikely”.

deutsche bank
Deutsche Bank is less positive on sterling's prospects

Prime Minister Theresa May’s plan to leave the EU’s single market, in a so-called “hard Brexit”, will also be bad for sterling, they said.

“There are no fallback options for hard Brexit,” the analysts warned. “Negotiating multiple free trade deals in parallel with EU talks over a two-year time frame is neither realistic nor good policy.”

Meanwhile, Credit Agricole analysts cautioned today that the likelihood the Bank of England will keep interest rates at record lows for the foreseeable future, combined with the looming EU exit negotiations, will also keep a lid on sterling.

“With Brexit-related uncertainty unlikely to fall with actual exit negotiations from the EU drawing closer and as the Bank of England is unlikely to make a case of higher rate expectations anytime soon, we believe GBP downside remains at risk,” they forecast.

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