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Viewpoints: How low can the pound go? | |
(4 months later) | |
A plunge in the value of the pound is not an overnight phenomenon and is only going to get worse, according to analysts. | |
Putting Friday's morning's "flash crash" aside, the pound has still fallen about 18% against the dollar since Britain voted to leave the European Union on 23 June. | |
This week alone it has fallen more than 4%, triggered by comments from Prime Minister Theresa May that she intends to begin the formal process of leaving the EU by next March. | |
While a weaker pound boosts exports by making UK goods cheaper for overseas buyers, it also makes imports more expensive for Britain. | |
Experts give their view on how far they expect it to fall. | |
Down and down | |
David Bloom, strategist at HSBC, forecasts that the pound could fall to $1.10 by the end of 2017 and sterling may hit parity against the euro. "The currency is now the de facto official opposition to the government's policies," he said. | |
Mr Bloom added: "The argument which is still presented to us, that the UK and EU will resolve their difference and come to an amicable deal, appears a little surreal. | |
"It is becoming clear that many European countries will come to the negotiation table looking for political damage limitation rather than economic damage limitation. A lose-lose situation is the inevitable outcome." | |
Gloom descends | |
John Wraith, head of UK rates strategy at UBS, predicts: "It is only a matter of time before less positive [economic] data starts to appear." | |
He expects the pound to reach parity with the euro by the end of next year - it last came close in late 2008. | |
Mr Wraith said: "When the global financial crisis entered its acute phase, sterling resumed its rapid decline, falling a further 20% by the end of 2008. | |
"Although different in its underlying causes, a similar pattern of decline, pause, and fresh falls may be unfolding now." | |
Mr Wraith forecasts sterling will hit $1.20 by the end of 2017. | |
A 'hard' Brexit | |
Bank of New York Mellon forecast a month ago that the pound will fall against the dollar to $1.10 by next August. | |
Neil Mellor, a currency strategist with Bank of New York Mellon, said: "We can dismiss what happened in Asia, but the bias for sterling's performance remains downward. | |
"The speech by [Prime Minister Theresa] May this week thrust the prospect of a 'hard' Brexit upon the market. The fact is that the bias to the downside is going to remain there until we see some details from the negotiating table." | |
Cutting rates | |
Alexandra Russell-Oliver, foreign exchange analyst at Caxton, estimates that the pound could head towards the $1.15 range by the end of 2017. | |
She predicted that the Bank of England could still decide to cut the interest rate again, putting pressure on the pound. | |
She said: "So far data has not been as negative as feared which lessened the expectation of the Bank of England acting. But there is still an expectation." |
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