Pound Sterling Forecast – Will the Pound Continue to Weaken?

Why the pound could have further to fall?

The pound has been lower as we approach the end of September, following the Bank of England decision last week.

We did write about this decision highlighting it as a risk event here. The pause by the Bank of England has seen sterling lower as interest rates are a key driver in the currency markets.

With the prospect of a further interest rate hike for the UK being largely removed for now, the pound is weaker as investors feel the BoE is finished for the time being.

UK economic data has been pretty poor, which really indicates that the Bank of England could be taking a risk by raising interest rates further.

Higher interest rates will ultimately choke off economic activity, through lower consumer and business spending.

The latest business surveys have pointed to a potentially weaker economic outlook, this is a strong reason to avoid further hikes. And avoiding further hikes could see the pound weaker.

What other global factors must we consider regarding a weaker pound?

The pound is also lower as the US dollar has been very strong. The latest US interest rate decision saw signals the US Federal Reserve might have to continue raising interest rates.

The US economy is roaring ahead, with strong economic growth and Inflation has been rising.

By putting some extra pressure on the US to raise their interest rate, we could see real potential for a stronger US dollar.

Indeed, the US dollar has been in the ascendency against the pound and the Euro. It has pushed to its strongest points against the pound since March.

As the US dollar accounts for around 60% of globally traded foreign exchange, it can weigh and influence other currency pairs. A good example is GBPEUR, where we can argue that the stronger USD has pushed GBPUSD lower, resulting in a lower pound against other currencies.

For a free, non-obligation FX check-up, please email me Jonathan Watson using [email protected]

I have worked as an FX payments specialist for many years and can provide some useful insight and information, to help you get the most from the market.

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