Will sterling hit $1.45 by the end of the year?

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Investment bank JP Morgan is forecasting that sterling will reach $1.45 by the end of 2018.

It is also predicting that the pound will be at $1.42 at the end of March.

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The bank argued that the UK economy will be boosted by the ongoing growth seen in much of the rest of the global economy.

While potential interest rate rises soon, as highlighted by the Bank of England in recent week, plus a potentially weaker dollar performance, all suggest an upside for sterling over the coming weeks.

In a note, JP Morgan said: “The modest acceleration in UK growth to around 2% doubtless contributed to the reversal of speculative positioning in GBP from heavily short to heavily long as it led to a firming up of interest rate expectations.”

JP Morgan also expects issues around Brexit to become clearer over the coming weeks and months, and anticipates that the Government will be able to negotiate its own bespoke deal with the EU – citing the fact that both Norway and Canada which are seen as potential models for Brexit were bespoke deals once too.

The bank has upgraded its forecasts on the back of this more positive outlook, having previously suggested $1.30 by end of March and $1.34 at the end of 2018 when it last released its forecasts at the end of 2017.

JP Morgan warns though that the UK situation is turbulent and events could easily knock this forecast back to lower levels, especially if Brexit negotiations appear to stall.

While also upgrading its forecasts, fellow Wall Street giant Morgan Stanley is less optimistic about the performance of the pound.

It is now expecting the pound to be at $1.41 at the end of March, after previously expecting just $1.25 at the end of last year.

But Morgan Stanley is more cautious about the annual performance of the pound, now expecting it to fall slightly from current levels to be at $1.38 by the end of the year.

This is because Brexit negotiations need to be concluded by October, and it expects markets to be nervous as it assumes negotiations will go to the wire.

Against the euro, Morgan Stanley is expecting the pound to drop to parity by the end of 2019 as a result of ongoing Brexit issues.

It anticipates further decline of the pound against the euro, to finish the year at just €1.0598 compared to €1.1347 at the time of writing. By the end of March, Morgan Stanley anticipates an exchange rate of €1.1280.

JP Morgan however only sees a slight decline in the euro, with it reaching €1.1360 by the end of March, and €1.1235 by the end of the year.

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