The British pound has whipsawed in the past month. First, it fell to an all-time low against the U.S. dollar after the U.K. government announced its “mini-budget.” Now, it is at its highest level in a week on reports of a possible major U-turn in government spending plans. Early Friday, it had ticked lower to trade around $1.131. Big picture, the pound is still down by more than 17% against the dollar on concerns around the U.K.’s economy and the Bank of England’s monetary policy. And of course, a strong dollar hasn’t helped either . The median forecast of 22 strategists compiled by CNBC shows that £1 is expected to be worth $1.07 by year-end. The forecasts were made after the U.K. government’s controversial fiscal plan , which prompted a significant sell-off in UK government bonds . Strategists at Nomura were the most bearish on the pound, expecting it to trade below parity — at $0.98 — by the fourth quarter. BMO Capital was the most bullish, expecting the pound to be worth $1.22 by the end of the year. Nomura: £1 = $0.975 Jordan Rochester, a senior G10 FX strategist at Nomura, said the rumors around whether the Bank of England might extend its bond-buying program were insufficient to reduce shorts against the pound. “The main reason why GBP should continue to fall is declining global growth expectations, risk sentiment on the back foot and the U.K.’s significant current account deficit over winter with the risks of energy blackouts,” he said in a note to clients. ING: £1 = $1-$1.05 Francesco Pesole, an FX strategist at ING, said the pound looked too strong at $1.10. He said the “fragile” and “highly dysfunctional” bond markets were keeping investors away from holding sterling assets. “We expect GBP/USD to stay on a downward trend on the back of fiscal concerns in the U.K., fragility in the gilt market and a strong dollar,” he added. Goldman Sachs: £1 = $1.05 The team led by Kamakshya Trivedi, head of global FX, rates and EM strategy at Goldman Sachs, thinks the pound’s rebound from its all-time low against the dollar last week was due to short-term demand. However, they believe the health of the U.K. economy and the “difficult policy mix” will likely push the pound downwards over the next three months. “The market is demanding a higher risk premium on U.K. assets, and we think recent BoE and government actions suggest that policymakers will be more willing to allow this re-pricing to occur via the currency rather than significantly higher yields,” the strategists said. UBS: £1 = $1.05 Dean Turner and Thomas Flury at UBS said that sterling was facing “a loss of confidence” among investors. They blamed the collapse in the currency on the government’s policy of “large, unfunded, fiscal easing.” “A policy mix of loose fiscal policy (with little detail on how to close the deficit) and milder monetary tightening gives investors few reasons to hold the pound,” they said. In a separate note to clients on 26 September, James Malcolm, FX strategist at UBS, had advised clients to trade the volatility with three-month, 15- delta EURGBP call vol at 18. He remarked the options contract was a “standout sell, in our view.”
