Fiscal and current account deficits, besides the increasing political risks may turn into “toxic cocktail” for the pound’s record-breaking advances, said the Royal Bank of Scotland Group Plc (RBS).
Paul Robson, a senior strategist at RBS in London, told Bloomberg that he recommended trading the sterling against the greenback on a “tactical basis”. Robson had earlier predicted correctly that the U.K. currency would continue with its gains against the dollar that earned it the tag of the best performing currency among major counterparts over the past year.
The pound halted its four-day consecutive streak of losses versus the dollar, and remained slightly unchanged against the euro.
“Over the next 12 months, rising political risk and less favorable moves in rate spreads may see more intense focus on the twin deficits,” Robson said in a note. “This is a potentially toxic cocktail for sterling. The pound may be slipping through $1.60 toward the end of the summer,” he later added.
The pound rose 0.2 percent to $1.6606 as of 4.29 p.m. in London trade, reversing its earlier decline of 0.4 percent in the past week, its fourth week out of five to fall. The sterling stood at 82.74 pence per euro.
Last week, the pound plunged against the dollar amid data that showed the economic recovery was slacking. Markit Economics reported that a measure of the service sector fell in March, while housing prices declined according to data by Lloyds Banking Group’s Halifax Unit.
Britain will vote in a general election in May next year. The country fiscal deficit is expected to be 6.6 percent this year and 5.5 percent in 2015, according to the Office for Budget Responsibility. Its current deficit, the difference between financial transfers, total imports and exports of goods and services stood at 22.4 billion in the fourth quarter, down from 22.8 billion pounds in the third quarter.
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