The pound remains a highly vulnerable currency according to analysts at Rabobank. They have a 3-6 month target for GBP/USD at 1.04 and cannot rule out a move towards parity dependent on decisions by the UK government.
“The ferocity of the market reaction to the Chancellor’s mini-budget on September 23 has triggered a wide range of criticism, including the accusation that the Chancellor and his advisers failed to naively read market conditions. .UK economic fundamentals have been souring for some time and sterling has been underperforming for some time, not only against the mighty dollar, but also against the troubled euro.”
“Budget signals imply that the UK government has placed a low priority on fiscal prudence, which has stretched market patience to the limit. Although GBP/USD has broken back above the 1.10 level after intervention From the Bank of England, we continue to see the pound as a very vulnerable currency.”
“While the BoE’s firefighting policies may keep the market fairly stable for now, without any change in the government’s fiscal position, the pound is on borrowed time. We have a 3-6 month target of GBP/USD1.04 and we cannot rule out a move towards parity that would depend on the direction of UK fiscal policies.”
Source: Fx Street