GBP / USD Forecasts Slashed to 1.22
GBP/USD: Pound Dives to New Lows on Brexit Backlash
Just when markets thought some stability might be returning to
markets after the Brexit vote on June 23, sterling sank new lows on
Wednesday, in a further show of pessimism towards the UK economy.
The
GBP/USD plunged 1.45% to $1.2833 on Wednesday morning in London, the
weakest the pair has traded since 1985, from $1.3026 at the close of
trade in New York on Tuesday.
On Tuesday the Bank of England (BoE)
did little to calm investors' fears over the post-Brexit outlook for
the UK economy, by highlighting the negative implications of splitting
from the EU.
Central bankers noted in the BoE's half-yearly
Financial Stability Report that the current account would likely
experience a large decline in portfolio and foreign direct investment,
while the commercial real estate market would also see weaker foreign
capital inflows.
"There is evidence that some risks have begun to
crystallise. The current outlook for UK financial stability is
challenging," BoE Governor Mark Carney said on Tuesday.
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
You agree to website policy and terms of use
Credit Suisse have revisited their forecasts for the pound to dollar exchange rate following the UK's vote to leave the European Union on June 23rd and it looks like sub-1.30 levels are on the cards should analysts be correct.
The institutional downgrades to the British pound are coming in thick and fast with analysts at Credit Suisse telling clients they have slashed their projections for the unit.
The cuts to the outlook follow the decision by the United Kingdom to exit the European Union, a scenario that was not factored into the Swiss bank’s previous estimates.
Like the majority of institutional researchers Credit Suisse were factoring in odds of a Remain win at similar levels to that of bookmakers.
The subsequent political fallout in the UK is also more serious than analysts had expected.
Indeed, few saw the resignation of David Cameron as contributing to the already massive uncertainty facing the UK economy.
The resignation has triggered unprecedented turmoil in the opposition Labour party while the Scottish nationalists have wasted no time in setting in motion the break up of the United Kingdom.
The uncertainty threatens foreign inflows of capital - a much needed buoyancy aid for the British pound which is considered expensive when compared to the current account deficit.
In short - the UK imports far more than it exports and in order to prop the currency up we rely on foreign investment inflows.
As an example of how such foreign inflows would dry up we cite the decision by Singaporean lender UOB to freeze all lending on London property purchases.