Sterling will rebound to pre-Brexit levels, says State Street

Sterling, which has fallen by about 10 per cent against the euro since the Brexit referendum, is likely to revert to where it traded before the vote over the next few years, according to the head of currencies for the European region at the world’s third-largest asset manager.

The UK currency was trading at 76.7p versus the euro immediately before the vote last June. It fell to as low as 0.91p in October and is currently trading at 84.7p. The volatility has affected Irish exporters, levels of UK tourists coming to Ireland and companies’ earnings as they translated UK income into euro.

“People are discounting a bad-tempered Brexit already,” said James Binny, head of currencies for the European, Middle East and African regions for State Street Global Advisors, noting that sterling barely moved in recent days following leaked reports of an acrimonious dinner last week between British prime minister Theresa May and European Commission president Jean-Claude Junker.

This suggests sterling is already the subject of currency speculators betting heavily that it will fall in value, or what is referred to in the market as "short selling", Binny said in an interview with The Irish Times in Dublin on Thursday.

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“There’s been a lot of short positioning out there in sterling for some time now, which to an extent is discounting a pretty bad Brexit,” he said. He said the real “risk” is that there may be a more benign outcome than the market is expecting.

Either way, Binny sees sterling ultimately moving back to “fair value”, which he put at 77p against the euro, possibly over the next two to three years.

‘Relief rally’

Meanwhile, Binny expects that the euro will experience a “little bit of a relief rally” on Monday should French centrist candidate Emmanuel Macron beat the far-right’s Marine Le Pen to secure keys to the Elysee Palace, as widely predicted by opinion polls.

However, he said that market participants will quickly move their focus to risks surrounding the French assembly elections in June, where Le Pen’s National Front party currently holds two out of 577 seats, while Macron’s fledgling En Marche! party, launched last year, has none.

While polls give Macron a 60 per cent chance of winning the French presidential election, it is possible Le Pen’s party could do well in the assembly elections, said Binny.

“So, there’s still room for some concern about French politics,” he said. “I’m sure people will focus on the assembly after they get through this weekend.”

Meanwhile, Binny, who previously worked for European hedge fund Brevan Howard and Lloyds Banking Group, said that the possibility of an Italian election this year is “lurking in the background”. The anti-establishment, Eurosceptic Five Star Movement is currently leading in Italian polls.