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Viewpoints: How low will sterling go? Viewpoints: How low can the pound go?
(4 months later)
The pound is taking a pounding in the wake of the UK vote to exit the European Union. A plunge in the value of the pound is not an overnight phenomenon and is only going to get worse, according to analysts.
It's currently trading at a more than three-decade low against the US dollar. But major banks and financial investors are warning it may have further to fall. 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.
A weaker currency is not necessarily a bad thing. It benefits exporters such as carmakers, since it makes their goods cheaper and therefore more attractive to overseas buyers. 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.
On the flipside of the coin, those earning salaries denominated in pounds will see their disposable income shrink and they will have less purchasing power when travelling abroad. While a weaker pound boosts exports by making UK goods cheaper for overseas buyers, it also makes imports more expensive for Britain.
So how much lower it can go? Here are some of the more bearish, or pessimistic, forecasts. Experts give their view on how far they expect it to fall.
Below parity Down and down
Jim Rogers, investor and chairman of Rogers Holdings: "It is going to go down a lot," he told the BBC in an interview. "It is going to go well below a dollar. Not this year, but before this is over. You should be very worried." 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.
$1.16 by the end-2016 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.
Swiss bank Julius Baer has been ranked the industry's most accurate currency forecaster by financial data provider Bloomberg. "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."
According to their statistics, Julius Baer made the most bearish forecasts in the time leading up to the UK's EU referendum. Gloom descends
Its head of foreign exchange research, David Kohl, remains one of the biggest pessimists on the outlook for the pound and is instead betting on the US dollar making big gains. 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."
$1.18 by the end of 2016 He expects the pound to reach parity with the euro by the end of next year - it last came close in late 2008.
Standard Chartered says the pound is "underpricing the risk facing the UK". 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.
It sees three main factors driving further weakness in the pound: political risk premium, economic headwinds and financial-market stress and foreign investment outlook. "Although different in its underlying causes, a similar pattern of decline, pause, and fresh falls may be unfolding now."
The UK faces "an arduous task in protecting core elements of UK access to the EU single market, as well as the current passporting regime, which allows UK companies to operate across the whole EU", it said. Mr Wraith forecasts sterling will hit $1.20 by the end of 2017.
"A divided governing party with only a caretaker leader in place and the possibility of a second Scottish independence referendum add to political risks." A 'hard' Brexit
However, the bank believes the most important long-term driver impacting the pound will be reduced foreign investment into the UK. Bank of New York Mellon forecast a month ago that the pound will fall against the dollar to $1.10 by next August.
$1.20 by end-2017 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.
Capital Economics says "there are good reasons to expect the pound to fall further" and that "we could hit $1.20 much sooner than end-2017 now". "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."
Julian Jessop, its chief global economist, said: "While the headlines have focused on the multi-decade lows in the bilateral exchange rate against the dollar, the pound is still only back to where it was over most of the period from 2009 to 2014 on a trade-weighted basis. Cutting rates
"The ongoing economic and political uncertainty, as well as the backdrop of the UK's huge current account deficit, would surely justify a bigger decline." 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."