Bloomberg: Sterling Risk – May Fall to $ 1.15

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The fall of the British pound (sterling) may not be over, although it is likely to save a 1: 1 exchange rate with the US dollar, notes Bloomberg Intelligence analyst Audrey Childe-Freeman.

He says there is a realistic chance that sterling could reach $ 1.15 in the second half of 2022, especially given the UK’s trade dispute with the European Union over the post-Brexit settlement in the British province of Northern Ireland.

This adds to the pressure on the British currency, which has fallen 12% in the last 12 months.

“A trade war between the UK and the EU is a scenario that could lead to an even greater loss of value for the pound,” writes Childe-Freeman, head of BI for the G-10 strategy (of the 10 strongest currencies internationally), adding that in this case the level of $ 1.20 per pound would be seriously tested.

On Friday, sterling stabilized at $ 1.2470, while a week earlier it had fallen to $ 1.2156.

The pound is under pressure from the risk of a recession in the UK (England, Scotland, Wales, Northern Ireland), a risk that could limit the ability of the Bank of England to raise interest rates as needed to hit galloping inflation. . The BoE forecasts are rather pessimistic, based on the downward trends in consumer confidence indicators.

The UK government is preparing to introduce into parliament a bill that would repeal part of the EU Exit Agreement on Northern Ireland, which would sharply increase tensions with Brussels.

The once “unbelievable” possibility of a 1 to 1 pound exchange rate and the dollar remains, however, not a serious possibility, explains Childe-Freeman. That would lead to a catastrophic stock market crash, an unnatural jump in the dollar and a long period of stagnation in Britain.

As the American network CNBC reported in its reporttraders are increasing the sorting of the British pound as the cost of living crisis in the UK begins to intensify.

Inflation rose to 9% year-on-year in April, a 40-year high as food and energy prices continued to rise as the UK Energy Regulatory Authority raised its household energy ceiling by 54% at the beginning of the month.

BoE Governor Andrew Bailey has warned of a prospect that resembles a Consumer Revelation, as a recent survey also found that a quarter of Britons have resorted to skipping meals.

Source: Capital

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