Sterling seen up 4% in a year on optimism for EU-UK trade deal - Reuters poll

By Jonathan Cable

LONDON (Reuters) - Sterling will gain towards the end of the year if Britain and the European Union (EU) thrash out a deal over future trade relations as most analysts expect, a Reuters poll found.

But London and Brussels remain far apart in negotiations, and the risk of a no-deal Brexit at the end of 2020 remains firmly on the table, analysts also say.

The pound, down around 6.5% against the dollar this year, made some gains on Tuesday - largely due to end-of-quarter rebalancing rather than improvement in sentiment or reaction to Prime Minister Boris Johnson's plan to fast-track 5 billion pounds ($6.2 billion) of infrastructure investment.

Cable was hovering around $1.24 on Wednesday and the June 25-July 1 poll of almost 60 foreign exchange analysts said it would be at the same level in one and three months' time.

It will then shift up a gear to $1.27 by end-December when Britain's transition period after leaving the EU is due to expire. The pound will be around 4% stronger than current levels at $1.29 in a year, the poll found.

"Our central scenario is that some kind of Brexit deal or delay will be agreed. With this in mind, we think sterling will rise, however, given recent developments, the risks to our forecasts are to the downside," said Simona Gambarini at Capital Economics.

While successive Reuters polls since the June 2016 referendum decision to leave have said the two sides would agree a deal, forecasts for the 12-month horizon were wide, ranging between $1.18 and $1.49, highlighting the uncertainty.

The dollar's dominance will slowly melt away over the coming year on weakening global demand and a sombre U.S. economic outlook but a second shock from the coronavirus would push it higher.

Over 10.5 million people have been infected by the coronavirus globally and there are fears that as countries ease restrictions, there will be a resurgence of cases, as has been seen in some U.S. states.

Against the euro the pound will not see much action for a year. One euro will be worth the 90 pence it was on Wednesday in six months. In a year it will fetch 88 pence, the poll found.

(Reporting by Jonathan Cable; Polling by Sumanto Mondal and Hari Kishan; Editing by Andrew Cawthorne)