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Pound's recovery no formality if UK stays in the EU: experts

By Donal O'Donovan

Irish exporters have been warned not to bet on a recovery in sterling if Britain votes to stay in the European Union.

Strategists and investors pointed to other reasons for the currency to stay weak, from a gaping current-account deficit to speculation that interest rates will stay low for the foreseeable future after the economy slowed dramatically in the first three months of this year.

The pound has already fallen sharply against a raft of currencies. Last November, a euro bought just 70p sterling, but that had risen to 81p by last week amid doubts about the UK's membership of the world's largest single market.

Pioneer Investments, which predicted sterling's slide in the second half of 2015, and Julius Baer, the second most-accurate currency forecaster, see a future bounce of no more than 4% after a remain vote on June 23, and for any gains to quickly evaporate in the aftermath.

"If the referendum says we stay in the EU, then we think the reward for the pound, or the support for the pound, will be very muted," said David Kohl, the head of foreign-exchange research at Julius Baer in Frankfurt.

"A week after the referendum, it will be quickly forgotten as you maintain the status quo. The downside is very high."

A decision to leave the EU would lead to "a short-term disaster and long-term damage" for the pound, claimed Manuel Andersch, a Munich-based strategist at Bayerische Landesbank.

"On a Brexit announcement, a 20% move by the pound is achievable," added Paul Lambert of Insight Investment Management, a Bank of New York Mellon unit that manages about $540bn (£380bn).

"If we vote to stay in, then it'll be a function of the extent to which the Bank of England starts to sound more hawkish about rate rises," he said.

A remain vote would also bring forward expectations of a currency-boosting rate rise.

Belfast Telegraph