The pound has slipped against the US dollar over the past year, hitting a 37-year low against the greenback last week – and it could weaken further, analysts say. The pound rose to $1.1403 on Wednesday – a level not seen since March 1985 – amid dollar strength and growing concerns over the UK’s economic outlook. This is only the fourth time the currency has hit the $1.14 level, according to Refinitiv data dating back to 1972. The pound has since pared some declines and was trading at $1.157 against the dollar on Friday afternoon. in London. “If you look at the pound sterling year-to-date against the other G-10 currencies, it has not only lost the most ground against the dollar, but it has also lost ground against almost all the other currencies in the group like well,” Sonja Marten, chief FX strategist at German bank DZ, told CNBC Pro. “The only currencies that have been weaker are the Swedish krona and the Japanese yen. So it’s certainly not just the strength of the dollar, but also a question of the weakness of the pound.” The pound’s relentless fall this year reflects the enormous challenge facing Liz Truss’s new government at a pivotal time for Britain’s economy. UK inflation is at its highest level in 40 years, with the consumer price index hitting 10.1% in July from a year ago, amid the worst crisis in the cost of life in Britain for decades. A series of six consecutive rate hikes by the Bank of England – including a 50 basis point hike last month, its biggest increase since 1995 – has so far failed to contain inflation. And Truss’s economic agenda, which includes tax cuts and a pledge to review the Bank of England’s mandate, has also put it on a collision course with the central bank, adding to market jitters and hitting the pound. More decline expected Now market watchers say the pound has fallen further. “I think it can go deeper. I think there’s downside potential depending a bit now on the news flow,” Marten said. She says the pound has the potential to hit $1.10 against the dollar if “things go wrong”. “In the short term, if things go wrong, and that means Liz Truss fails to capture investor confidence by saying how she’s going to fund her spending and if the Bank of England’s mandate has been hit. And the whole situation with energy prices remains,” she said. “We just went from $1.23 to $1.15 in two weeks, so I wouldn’t rule it out. It’s a currency pair that tends towards big swings.” Read more Wall Street pro predicts when the S&P 500 will rally — and reveals how to trade it This chip stock has convincingly beaten its peers this year — and analysts think it can go higher Here are two ETFs to play it Stephen Gallo, European head of FX strategy at BMO Capital Markets, doesn’t see “much relief” for the pound in the near term, even if the Bank of England picks up the pace of rate hikes. “The way we see it, the UK economy is already heading for some form of economic hard landing. While looser fiscal policy may soften the blow in this regard, it also risks economic overheating and a downturn. boom and bust,” he said. said in a note. Sterling’s weakness this year has largely been due to structural factors, he added in an interview with CNBC Pro. Gallo cited a clear spike in the dollar, a considerable cooling in inflation rates in Europe and a sharp de-escalation of the war in Ukraine as necessary conditions for the pound to rally. As such, he sees the British pound trading between $1.15 and $1.18 in the near term. Meanwhile, Chang Wei Liang, FX and credit strategist at Singapore’s DBS Bank, believes the pound “will move around the $1.14 and $1.15 level.” “We believe current levels are subject to the BOE continuing its interest rate hikes to moderate inflationary pressures in the UK,” Chang said.
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