GBP/USD to end the year at a lower level

GBP/USD has enjoyed support at 1.30 so far in August amid the USD's consolidation but economists at HSBC think the cable's outperformance of late leaves it exposed to the downside.

Key quotes

“On the cyclical front, recent data may not have been as bad as expected and the BoE recently revised its GDP and inflation forecasts higher, albeit highlighting downside risks. However, labour market data as of July 2020 shows 730,000 jobs lost since March 2020. More job losses are likely, as the UK government's support schemes are set to end in the months ahead. The government's ability to continue to fund such schemes may be compromised by the scale of underlying debt, constraining further fiscal expansion. Even if there is further fiscal easing, a larger burden of bond purchases may be taken up by the BoE, with an extension of unconventional policies weighing on the GBP.”

“The recent pick-up in COVID-19 cases in the UK could be further cause for concern. The UK government has responded with localised lockdowns, but the threat of wider restrictions remains.”

“The elevated level of the GBP is also vulnerable to a possible renewed focus on Brexit risks. There has been little evidence of progress in the negotiations, creating asymmetric downside risks to the GBP, especially if the tone around the negotiations remains downbeat in September. Even if the UK secures a partial free trade deal with the EU, it would increase constraints on trade and investment for the UK. This would likely require a weaker currency in order to offset the loss of competitiveness created by these burdens.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.