Pound to Dollar Forecasts Range from Parity, 1.15 Through to 1.20
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Two prominent financial market sages have forecast the GBP / USD exchange rate is at risk of a fall to parity, however most analysts appear content to call the bottom at 1.20.
With the implications of the UK’s Brexit vote begin to sink in, research analysts see protracted downside risks for sterling.
A good majority of those analysts we follow now expect GBP/USD to trade down to 1.20 by the start of 2017.
However, the balance of risks to these forecast are currently skewed to a larger decline.
Key to the depreciation will be the Bank of England which is expected to cut interest rates lower, to perhaps 0%.
All the while expectations for another interest rate rise in the United States in 2016 keep the USD buoyed.
George Magnus, the independent economist and commentator who was Chief Economist at UBS from 1995-2012, says that the prospect of GBP/USD falling to parity is real.
“I said before the referendum it would most likely fall by 20 per cent, and that still looks likely. If the economy really shuddered, parity is quite possible,” says Magnus.
The big variable to note is “if the economy really shuddered”.
What such a shudder looks like is unclear.
“I personally expect a recession to take hold, starting with a slowdown in the third quarter. Lending and spending decisions, especially when it comes to house purchases and investment, normally go on hold under conditions of uncertainty, of which we have more than enough,” says Magnus.
Magnus is not alone in his expectations for recession, as we have noted recently, a good number of institutional economists are also warning of recession.
“It matters, of course, whether we do experience a recession, not least to those who will lose their jobs, or have to weather wage stickiness. But it will also matter a lot to the Government’s fiscal position which would deteriorate sharply,” says Magnus.
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