According to analysts at Wells Fargo, the mix of measured monetary tightening and rapid inflation, combined with the slowdown in UK economy, provides an underwhelming backdrop for the pound. They revised their forecast for the GBP/USD lower and now see it around 1.1700 in mid-2023.

Key Quotes: 

“We expect the U.K. central bank to begin lowering its policy interest rate during the second half of 2023, by a cumulative 50 bps to 1.50% by the end of next year.”

“Overall, this mix of gradual monetary tightening and rapid inflation (meaning that real U.K. policy interest rates will remain substantially in negative territory), combined with a U.K. economic downturn, provides an underwhelming backdrop for the U.K. currency. We have revised our forecast for the pound lower, and now see a trough in the GBP/USD exchange rate around $1.1700 in mid-2023.”

“Even as the U.S. economy falls into its own recession and the Fed begins to lower interest rates by late next year, we believe that headwinds facing the U.K. economy will mean only a modest rebound for the pound, and we target a GBP/USD exchange rate of $1.1900 by the end of 2023.”