Bloomberg.- The U.K. prime minister’s push for a so-called soft Brexit, which envisions maintaining a close economic partnership with the European Union, is good for sterling, according to Deutsche Bank AG. The prospect of an interest-rate increase as early as August by the Bank of England will add support for the British currency, said Oliver Harvey, a strategist in London at the German bank.
Even as sterling fumbles for a clear heading not far from an eight-month low, Deutsche Bank is keeping its forecast for sterling to appreciate 6.6 percent to $1.41 by year-end. That is more optimistic than the median estimate for $1.34 in a Bloomberg survey of analysts.
“It is an important positive step,” Harvey said in emailed comments, referring to May’s “white paper” on Brexit released Thursday. The bank is bullish on the pound “based on the movement toward a soft Brexit from May, the lack of effective challenge from the Brexiteers and a Bank of England hike in August.”
At the heart of the 98-page government document is a proposal for a new U.K.-EU “free trade area,” with interlinked customs regimes, and identical regulations for industrial goods and agri-food. While there would be “no tariffs on any goods,” the U.K.’s vast services sector will suffer significant disruption.
The pound was around $1.32 as of 4:15 p.m. in London Thursday. It fell 5.8 percent in the last quarter, the worst loss in two years, and touched $1.3050 on June 28, the lowest level since November.
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