Managers stick with sterling after volatile 2010

Fund managers are expecting sterling to bounce back later this year after being one of the casualties of strong currency volatility this year.

While sterling has climbed 4.7% against the ailing euro in 2010, the pound is still 10% and 12% lower against the dollar and yen respectively.

Thanos Papasavvas, who oversees more than $4bn (£2.7bn) in active currency funds at Investec Asset Management, believes sterling is the cheapest of all major global currencies right now.

“The aims of the coalition Government seem to be well accepted and we believe this was probably the best of the potential post-election scenarios for sterling,” Papasavvas says.

“The UK is getting its house in order and a lot of the doom and gloom which was around earlier in the year has fizzled out.”

With sterling at $1.465 during Tuesday trading, Papasavvas says it offers attractive value against the dollar.

“Fair value for sterling is about $1.65,” he says. “It will not go that high in the near term, because of the headwinds in Europe driving the dollar higher, but it could easily get to $1.50-$1.55.”

Courtiers Investment Services CIO and fund manager Gary Reynolds believes sterling will be stuck in a trading range against the dollar over the next five years.

He believes sterling will trade plus or minus 15 cents around $1.45 during this period. However, Reynolds says the big move for sterling will be against the euro.

“The euro is still overvalued,” Reynolds says. “We recommend you play currency hedges by country as there is now a good chance the euro will break up entirely or at least fragment.

“There has been political will to stay in until now, but Greek problems have raised the question of whether failing countries will be bailed out, and the answer seems to be ‘not necessarily’.”