The pound has proven stable against the US dollar for most of this year averaging around 1.3850 since March although it did briefly hit a low of 1.3412 at the end of September. Economists at MUFG Bank expect cable to sink into the mid to low 1.3000’s amid concerns that the UK economy will slow more notably heading into year-end.

Limited upside for GBP/USD as it runs into stronger resistance between 1.3800 and 1.4000

“The lack of support for the pound from higher UK rates still suggests that fundamentals factors driving higher UK rates are not fully supportive for a stronger pound. The risk of higher inflation becoming more embedded in the UK economy posing downside risks to long-term pound valuation.”

“We continue to see only limited upside for cable as it runs into stronger resistance between 1.3800 and 1.4000.”

“Evidence of a deeper slowdown in UK growth heading into year-end and/or the BoE disappointing expectations for the amount of rate hikes in the coming months should see cable dropping back into the mid to low 1.3000’s especially if global equities lose upward momentum as well.”