Pound’s rally over Brexit unsustainable

Bloomberg

The pound’s world-beating rally is unsustainable as traders are over-optimistic about the way forward on Brexit, according to money managers.
Sterling has gained more than 3 percent versus the dollar this year, the most among its Group-of-10 peers, on conviction that the possibility of a no-deal Brexit has receded. Fund managers at both Aberdeen Standard Investments and BlueBay Asset Management LLP think that the risks are tilted to the downside for the UK currency against the greenback.
“In the short term, I see value in selling the pound versus the dollar as it’s moved a long way in a short period of time and I think the market has got carried away with the falling probability of no deal,” said James Athey, a money manager at Aberdeen Standard Investments in London. “I don’t agree that Parliament is easily able to prevent no deal.”
The pound dropped 0.3 percent to $1.3155 on Monday as profit-taking took over from buying interest from real-money accounts.
It weakened for the first time in six days versus the euro, slipping 0.3 percent to 86.72 pence.
One of the amendments to PM Theresa May’s deal gaining traction among members of Parliament aims to delay Brexit beyond the March 29 deadline and avoid a chaotic no-deal. The chances of
getting the amendments through the House of Commons depend on how May and Labour leader Jeremy Corbyn instruct their MPs to vote.
If none of the amendments pass, May will be left once again with a deal that lacks enough support and no viable alternative option. The current impasse is likely to drag on, meaning risks for the pound are tilted to the downside, according to Mark Dowding, a money manager at BlueBay Asset Management LLP.
He sees Brexit ultimately being overturned following a second referendum, but before then sees the pound weakening as the March deadline approaches. “I’m doubtful much happens until March,” said Dowding. “There may be a majority for no hard Brexit, but unless something else is actually agreed, this is the de facto position come March 29.”
Still, for some analysts, the political turmoil is no more than a temporary blip on the pound’s broader uptrend for 2019. Goldman Sachs Group Inc sees sterling being the best-performing currency in the G-10 this year.