Analysts at Rabobank see risks that the GBP/USD pair may trade as low as 1.14 on a 1 to 3 month perspective. They warn that the scenario assumes another break below parity for EUR/USD.
Key Quotes:
“The Bank of England’s forecast of recession underpins the vulnerability of the pound going forward. The warnings on growth over-rode any support for the currency that may otherwise have been derived from the Bank’s 50 bps rate hike, the largest incremental move in 27 years. The UK is facing months of astoundingly high inflation levels faced by a period of disinflation during potentially 5 quarters of negative GDP growth. In politics, Liz Truss, the favourite to win the Tory party leadership race, continues her charm offensive aimed at Tory party members who will choose the next UK PM in September. Her policies, however, are not necessarily in line with investors’ needs. We see risk that cable could print as low at 1.14 on a 1 to 3 month view. This assumes a continued period of broad-based USD strength.”
“We recently reined back our 3 mth forecast for EUR/GBP to 0.84 from 0.86. That said, on the assumption that EUR/USD faces another break below parity on a 1 to 3 month view, we see scope for cable to head to 1.14.”