GBPUSD has been recovering on the expectation of more credible UK fiscal plans and the softer Dollar. Nonetheless, economists at ING expect the pair to reverse back lower to the 1.10 zone.

UK economy to contract every quarter in 2023

“We doubt 2023 will prove the year of a benign Dollar decline. And the risk is that the Fed keeps rates at elevated levels for longer. Given Sterling’s large current account deficit and its transition to high beta on the external environment, we think it is too early to be expecting a sustained recovery here.”

“We favour a return to the 1.10 area into year-end as the government introduces Austerity 2.0 and the Bank of England cycle is repriced lower.”

“We look for the UK economy to contract every quarter in 2023 – making it a very difficult environment for Sterling.”

“GBPUSD realised volatility is now back to levels seen during Brexit and our market call for 2023 is that these types of levels will become more, not less, common.”