Sterling will gain against the euro so long as investors slash exposure to the spiralling sovereign debt crisis that threatens some of the eurozone's biggest economies, a Reuters poll showed on Friday. Investors have had little choice but to look across the Channel for a liquid market that can also act as a hedge against the eurozone debt crisis, which this week sent world stock markets spiralling downwards.
Sterling hit a two-month high against the euro on Thursday at 86.8 pence after the European Central Bank failed to calm market worries as Italian and Spanish government bond yields soared above 6 percent.
Conducted before global stock markets went into a tailspin on Thursday, the Reuters poll of strategists showed sterling steady at around 87-88 pence per euro in three and six months. It is expected to strengthen to 84.7 in a year.
The pound is expected to remain firm against the dollar, rising to $1.64 in a year, from $1.627 on Friday.
"Cable has been helped so far primarily by the weaker dollar, as data at home has delayed a Bank of England rate hike, if any, to 2012," said Roberto Mialich of UniCredit, who is ranked second in Reuters' year-to-date accuracy league. Analysts expect sterling to strengthen to $1.63 in one month, and then stick around $1.64 in six months to a year.
While British Finance Minister George Osborne has hailed the UK as a "safe haven" in an uncertain world, a firm currency is not likely to help Britain's economic recovery.
Business surveys suggest export order growth is slowing sharply and a strong pound could make this worse. Given the market turbulence caused by the eurozone debt crisis, interest rate differentials look moot right now.
The ECB has raised interest rates twice since April to 1.50 percent, although it is not expected to do so again soon.
The latest Reuters poll shows the Bank of England is not likely to raise its benchmark rate from a record low of 0.50 percent until early next year.
Sterling looks set for a slightly less volatile month compared with July, according to calculations derived from the standard deviation of forecasts from the poll. Sterling volatility is expected to fall to 7.4 percent on an annualised basis from 8.4 percent last month. That compares to the average of 7.7 percent so far this year.