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Loomis Sees ‘New Chapter’ for Pound Beyond BOE Rate Decision

A collection of British five pound sterling banknotes sit in this arranged photograph in London, U.K., on Thursday, Oct. 13, 2016. The U.K. currency is getting harder to trade, and to predict, because the nations exit from the European Union has changed the rules of engagement. Photographer: Miles Willis/Bloomberg (Miles Willis/Photographer: Miles Willis/Bloom)

(Bloomberg) -- Loomis Sayles, a Boston-based asset manager with $360 billion under management, says the pound’s gains have room to run, even as some strategists predict declines if the Bank of England cuts rates on Thursday. 

Lynda Schweitzer, a portfolio manager at Loomis Sayles, says she’s prepared to abandon an underweight or neutral stance on sterling for the first time since 2015. For that, she’d need to see evidence Keir Starmer’s Labour government is meeting its economic goals and narrowing the gap with the US, as well as mending ties with the EU. 

“This could be a new chapter — with the election, we are more optimistic on the UK economy,” said Schweitzer who has watched the UK market for much of her 30-year career. 

“Sterling does float to the top as one of the best ideas. If the new government is able to deliver on some of its plans, the pound could trade higher still.” 

Schweitzer would be coming late to a rally that’s put the pound atop the G-10 currency rankings this year and made long sterling a crowded trade. Hedge funds last week ramped up bets for a stronger currency to the highest in a decade, data from the Commodity Futures Trading Commission shows, while a broader measure of wagers that includes asset managers rose to its highest on record.

A chorus of strategists from JPMorgan Chase & Co to MUFG are now warning that the currency could be vulnerable to a correction, though any retreat if the Bank of England cut rates on Thursday may be used as an opportunity to buy. 

JPMorgan is still sticking to its forecast that sterling will extend its recent run of gains to hit $1.35 by March next year. The currency was trading down 0.5% at $1.2793 as of 8:40 a.m. in London, still up more than 1% in the past month.  

Market pricing suggests the outcome of the BOE’s meeting is a coin toss, and Monetary Policy Committee communication has been scarce in recent months, mainly due to the blackout period during the election campaign. 

(Updates prices in seventh paragraph)

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