London: Pound is quickly running out of friends. And its biggest enemies see the British currency falling to levels last seen during the reign of Margaret Thatcher.
Deutsche Bank last year was already predicting a plunge in 2016 to $1.27, a level that hasn’t been seen since 1985, when the Live Aid charity concert was rocking north-west London and England’s soccer teams were banned from European club competitions.
The world’s second-biggest currency trader’s view has been joined by a growing number of bears this year. ING Bank predicts the pound will slide 8 per cent to $1.32 by the end of June and Credit Suisse Group sees it dropping to $1.40 in three months and $1.33 in a year. Nomura Holdings is forecasting $1.41 in the middle of 2016, compared to a previous call of $1.52.
Strategists are racing to downgrade their forecasts for a currency that’s being knocked by a litany of woes from the prospect of record-low interest rates being entrenched for longer and a possible exit from the European Union that business leaders say will damage Britain.
Analysts’ forecasts for the pound-dollar exchange rate by June have dropped 2 per cent in the past month, even as they failed to keep up with its almost 5 per cent slide in that period, the worst after the South African rand.
The UK currency “doesn’t have many friends at all,” said Jane Foley, a foreign-exchange strategist at Rabobank International in London, whose $1.44 mid-year forecast has already been surpassed. “It’s easy to stack up the negative sterling reasons. We’ve had disappointing economic data, inflation is very weak, the market is pushing back expectations about interest-rate hikes and there will be political issues this year.”
The pound was little changed at $1.4398 in London, after dropping to $1.4352 on January 12, the lowest since June 2010. It has declined 2.3 per cent this year, after sliding 5.4 percent through 2015 and 5.9 per cent a year earlier. Sterling has weakened 2.5 per cent versus the euro since the end of December.
Even with the flurry of downgrades, the median of analysts’ predictions is for the pound to gain by June to $1.48. That’s down from $1.51 a month ago and the weakest forecast since June.
Calling the pound proved to be tricky during 2015, with the currency ending about 5 per cent weaker than the $1.55 median of analysts’ predictions as of December 2014. Credit Suisse was then forecasting $1.53, according to the data.
Michael Rake, chairman of BT Group, and Barclays chairman John McFarlane became the latest business leaders to warn that a vote to leave the EU would damage the country and that the ‘Brexit’ debate has already cost the UK some foreign investment.
Bank of England (BoE) officials kept the benchmark interest rate at a record-low 0.5 per cent Thursday, where it’s been since March 2009, and said the outlook for growth and inflation has weakened further.
Concerns about Britain’s future in the EU and a weak domestic economic recovery have weighed on the pound since the start of the year. This has coincided with money-market traders further delaying the timing of when the BoE will lift interest rates for the first time since July 2007.
Forward contracts based on the sterling overnight index average, or Sonia, aren’t pricing in a quarter-point increase until after February 2017, data shows. The contracts indicated a January 2017 increase as recently as January 4.