Sterling: Big 7 Bank Forecasts, Downside Risks Remain

During the month of June, the pound weakened markedly against the US dollar, going from 1.2613 to 1.2155. Entering the second half of the year, some analysts have updated their forecasts for the British pound. Here you can find the expectations of seven major banks on the prospects of the pound for the coming months.

Wells Fargo

“The combination of measured monetary tightening and rapid inflation, coupled with an economic slowdown in the UK, provides a disappointing backdrop for the British currency. We have revised down our forecast for the pound, and now see a low in the GBP/USD exchange rate around 1.17 in mid-2023”.

Credit Suisse

“A central bank that sets the bar very high to keep pace not only with the Fed, but even with entities like the SNB and perhaps the ECB in the future, in a context of weak trade dynamics and ambiguous long-term government policy, keeps the door open for GBP/USD to fall towards 1.17 and EUR/GBP to rise towards 0.90.”

TDS

“GBP’s short-term trajectory is skewed to the downside, although it remains at a fairly significant discount. EURGBP’s rally reflects GBP’s relatively higher beta relative to risk assets. At the same time, the ECB is has become more aggressive.BoE fiscal support may help put a floor on the pound, but not before a short-term break below 1.20.Still, BoE prices look too aggressive relative to our forecasts, which leaves the GBP vulnerable in the crosses.”

MUFG

“Risks to GBP/USD in Q3 are to the downside as GBP tends to underperform when financial conditions tighten. Beyond that, even if GBP/USD recovers, GBP will remain weak.” against the EUR.”

HSBC

“In the medium term, we continue to expect the GBP to weaken further against the USD, based on more dovish action at the BOE compared to the ongoing sharp Fed tightening. The UK may also face structural challenges long-term.”

CIBC

“The macroeconomic headwinds suggest that the Bank of England will not be as aggressive as the market is pricing in. We expect a prolonged policy pause after rates hit 1.75% in September. As the balance between growth and inflation remains difficult, we expect for the bank to prioritize growth. This favors the decline of the GBP, especially as current political risks, including a potential trade conflict with the EU, remain real.”

scotiabank

“We think the market’s bets on an additional 150bps of hikes from the Bank of England this year are stretched and cutting them will act as a GBP headwind in the coming months.”