Pound may be headed for parity
Published on 27.09.2018 17:52

The market had been expecting such a move so all eyes were on the following monetary statement for signs of the US central bank’s future moves and US Fed president Jeremy Powell pulled no punches with a bullish speech that left no doubt in investors’ minds that further rate hikes were on the way.

This is just another notch in the realm of bad news for the pound after last week’s disastrous performance by British Prime Minister Theresa May in Salzburg where she tried to lay out her future Brexit plan before EU partners, but was immediately rebuffed.

So with the difference in interest rates between the UK and the US growing wider as well as increased chances for a hard Brexit, some predict a dire situation for the pound as the year closes out.

"After a few weeks of relief, GBP fell sharply following the EU summit in Salzburg, and comments from PM May that dug in on the UK’s negotiating position” said analysts from Goldman Sachs.

“The summit offered no progress on the Irish border nor the end-state terms and although expectations for any decisive action were low, the tense atmosphere has shaken the improving sentiment in pound” they added.

One analyst believes if no deal is struck on Brexit, the pound is headed for its lowest level against the greenback for many years as well as parity against the Euro.

"Sterling continues to work as the shock-absorber. The spectre of material short-term damage to the economy in case of a "no deal" keeps Pound investors on their toes," says Daniel Trum, a strategist from UBS

"If a no-deal scenario were to transpire, it is likely that the hit to the economy will be substantial until factors can adjust. We think that GBPUSD could experience new multi-decade lows in the area 1.10-1.15, while EUR/GBP may temporarily shoot above parity”. He added.


Andrew Masters

Analyst

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