Sterling: how low could it go?
Latest Economic Commentary from HSBC UK Economist, Mark Berrisford-Smith, looks at the falling pound.
Key points
The US dollar continues its strong run as the Federal Reserve keeps up its aggressive tightening of monetary policy. The US policy rate is now expected to top out at 4.50-4.75% early next year.
Sterling has lost more ground against the dollar than any other major currency, with the exception of the Japanese yen. This reflects not only the more relaxed approach to monetary tightening being taken by the Bank of England, but also the UK’s big current account deficit, the prospect of a steep increase in government borrowing, and post-Brexit frictions with the EU.
HSBC has therefore revised down its forecasts for the sterling/dollar exchange rate, with the pound now expected to fall to $1.10 by the end of this year, before settling at around $1.08 during 2023.
With currency markets often liable to overshoot, a fall in the value of the pound to parity with the dollar can’t be ruled out. But even if that were to happen, it’s unlikely that parity would be sustained.
To read the full report, click here.