The United Kingdom remains at the end of the energy chain from Russia and therefore will continue to face extreme energy prices and even actual shortages and blackouts as winter takes hold.
Then there is the matter of a change of leadership, a slowing economy, widespread super-inflation, and a central bank relentless in its further attack on consumers and businesses alike via interest rate hikes.
My parity to the US dollar forecast, which was made at 1.15, and now at 1.05, is a lot, lot closer.
The latest tax cuts and budget were not well received on Friday by the market. This is mere window dressing to the UK’s bigger problems. The economy is headed for a serious, perhaps sustained recessionary period.
The hangover effect from the Covid stimulus remains in full force too. There is very little to see on the horizon that could in any way be viewed as supportive of either the economy or the currency.
My target remains at parity. At this point, an overshoot to as low as 0.9500 is not out of the question.
There will be some immediate volatility of course, but whatever that volatility looks like, the dominant major trend risk remains very much to the downside.
Should there be any escalation to the war in Ukraine, and there are clear rumblings to this effect right at the moment, again we would see further sharp downside in the Pound as well as the Euro.
My forecast for the EUR/USD set last year of 0.97 has been easily achieved, and I recently forecast a further decline to 0.88 was very possible there.
One should not underestimate the crisis that is all of Europe at the moment and the Pound is more vulnerable than most.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
