Sterling’s plunge against the dollar isn’t over yet, according to three of the world’s top currency traders.
After falling to a 31-year low Wednesday, sterling may sink another 7% to 11% this year in the aftermath of the UK’s Brexit vote, according to Goldman Sachs, Deutsche Bank and Citigroup.
The currency will weaken to $1.20 on expectations the Bank of England will cut interest rates to contain the economic fallout from the referendum, according to Goldman Sachs and Citigroup.
Deutsche Bank has an even more bearish forecast, seeing $1.15 by the end of 2016.
“The question is: How quick do we get there?” Richard Cochinos, London-based head of Europe Group-of-10 currency strategy at Citigroup, the world’s biggest foreign-exchange trader according to Euromoney magazine, said in an interview.
“You’re going to need much greater inflows from investors long term and short term before the currency stops weakening,” he said.
The pound has tumbled to a three-decade low during the past two days amid mounting evidence the Brexit vote is hurting confidence in Britain’s economy.
With real-estate tremors and fund suspensions, concern is building that a failure to control the aftershocks of the referendum will propel the nation into a recession.
“We are switching to forecast a second leg of weakness for the pound, as the Bank of England’s policy response drives the currency weaker,” wrote analysts including Robin Brooks, chief currency strategist at Goldman Sachs, the world’s seventh largest currency trader.
The bank forecast the exchange rate will reach $1.20, $1.21 and $1.25, respectively, in the next three, six and 12 months.
Goldman Sachs, Deutsche Bank and Citigroup are among the most bearish sterling forecasters, with only 11 of 62 analysts surveyed seeing the exchange rate dropping to $1.20 or lower by the end of the year.
In December, Deutsche Bank called for a 15% drop in the currency.
The pound fell as much as 1.7% yesterday to $1.2798, the lowest since 1985.
The pound “has much more to go,” wrote George Saravelos, co-head of global foreign-exchange research at Deutsche Bank in London, the world’s No. 4 biggest currency trader, in a note.
“Our aggressive forecasts may still be under-stating the level of weakness,” he said. Bloomberg
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