The stunning collapse of the British pound



Further to the recent Brexit referendum the pound has plummeted against other currencies. So how much lower can it go? Here are some of the more bearish, or pessimistic, forecasts.

Below parity
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.”

$1.16 by the end-2016
Swiss bank Julius Baer has been ranked the industry’s most accurate currency forecaster by financial data provider Bloomberg. According to their statistics, Julius Baer made the most bearish forecasts in the time leading up to the UK’s EU referendum. 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.

$1.18 by the end of 2016
Standard Chartered says the pound is “underpricing the risk facing the UK”. It sees three main factors driving further weakness in the pound: political risk premium, economic headwinds and financial-market stress and foreign investment outlook. 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. “A divided governing party with only a caretaker leader in place and the possibility of a second Scottish independence referendum add to political risks.” However, the bank believes the most important long-term driver impacting the pound will be reduced foreign investment into the UK.

$1.20 by end-2017
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”. 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. “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.”

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Chris Ferguson

About Chris Ferguson

Chris formed Credence to bring credible financial advice to the offshore marketplace. Chris has been in financial services throughout his whole career, with experience in the GCC, United States, United Kingdom and Australia. Chris entered the financial services sector to enable as many people as possible benefit from freedom and choice in life by making good decisions rather than experiencing stress and anxiety over money.

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