HSBC: The pound is ‘neither strong nor stable’

Reuters/Pool

Governor of the Bank of England Mark Carney hosts a quarterly Inflation Report press conference at the Bank of England in central London, Britain August 4, 2016.

LONDON — HSBC is bearish on the pound and believes the risks associated with a “hard” Brexit will see the currency weaken immediately after the general election on June 8 whatever the outcome.

Writing on Tuesday, HSBC strategists David Bloom and Daragh Maher forecast that the pound would reach parity with the euro and 1.20 against the dollar by the end of 2017.

They said that the currency “remains vulnerable to a potentially acrimonious negotiation process with the EU and the lingering possibility of a ‘no deal’ outcome.”

The pair also pointed to a continued widening of the trade deficit and signs that the economy is losing traction — notably through lower consumer spending — as reasons that the pound will adjust downwards.

Heading towards euro parity?

“We believe this recent rally is most likely to have marked the 2017 high for GBP/USD at around 1.30,” the pair argue.

“We continue to believe GBP/USD will weaken back to 1.20 and EUR-GBP will move to parity by the end of 2017 on the back of political, structural and cyclical pressures.”

Prime Minister Theresa May is widely expected to win a majority in June, despite a shock poll released on Tuesday evening which projected that the election would force a hung parliament.

A Deutsche Bank note circulated to clients earlier this week was also bearish on the pound, saying that any possible upside for the currency from next week’s election has already been priced into the market.

“A market-friendly UK election outcome already appears priced and the risks are now skewed to a disappointment,” the note said.