Against the backdrop of the economic verge of recession and high inflation, the new Prime Minister "falls" on March 5, Sept. 5 failed to bring more certainty to the market, causing the pound to fall to its lowest level since 1985.
followed closely behind, negative news such as the Bank of England rate hike expected cooling and the death of Queen Elizabeth in the UK followed one after another. The market expects that the pound is expected to continue to be under pressure, becoming another currency that has fallen below par with the US dollar after the euro.
On Thursday, the pound rose to 1.16 against the US dollar before the ECB resolution. After the ECB resolution, it quickly fell below 1.15, hitting a daily low of nearly 1.1460, and finally closed down 0.29% to 1.1501. During today's Asia-Pacific trading session, the pound continued to hover around 1.1500 points against the US dollar.
At 6:30 p.m. local time on the 8th, the British royal family issued a statement saying that Queen Elizabeth II of the United Kingdom died in Balmoral Castle in Scotland at the age of 96. As the British people are suffering from inflation and the European energy crisis continues to ferment, the queen, who has always had a "peace of mind" effect, passed away.
Currently, UK prices are rising at the fastest pace in more than 40 years, with inflation reaching 10.1% in July, surpassing double digits for the first time since 1982. UK household energy bills will soar to an all-time high as inflation continues to soar. According to statistics, the UK is facing the most severe family budget pressure in a generation, the cost of maintaining the most basic living standards in the UK has increased by 20%.
In addition, the market's expected decline in the Bank of England's 375 basis points rate hike next week also puts pressure on the pound. Thursday's interest rate futures pricing shows that financial markets expect the Bank of England to raise a sharp 75 basis points next week to drop below 50%, while this probability is above 80% earlier this week. Shahab Jalinoos, global head of foreign exchange strategy at Credit Suisse, said that if the UK wants to attract enough foreign investors to support the pound, a higher interest rate environment is needed. But the Bank of England is currently clearly unwilling to actively raise interest rates, which is a key factor that is unfavorable to the pound.
"Hope of substantive action at the Monetary Policy Committee (MPC) meeting on September 15 was hit on Wednesday as MPC members said they had no intention of taking radical action. The impact of the Bank of England on the outlook for the pound is significant "If the Bank of England is dovish for any reason (moderate tendencies or concerns about political attacks), the loose monetary policy of plus the fiscal policy of Tras aimed at subsidizing consumers, the UK's inflation could be possible," he said. Rapidly worsen. This will not only fail to attract foreign capital, but may even lead to a British capital outflow. In this darker situation, the consequences of the pound will be disastrous. "He predicts that the pound will fall to 1.1250 against the dollar next. At the same time, due to the "European Central Bank's hawkish attitude and the UK economy downturn", the pound will also depreciate against the euro, and the euro will also rise to 0.8700 against the pound.
HSBC research found that the impact of the Bank of England policy expectations on the pound exchange rate has become more important than before. Dominic Bunning, strategist at HSBC , said: "This year, the pound has been severely affected by a wider risk appetite. Stock volatility is usually the main driver of pound, but at the moment, the impact of spread is actually in fact It has exceeded the impact of investor risk appetite, which makes the Bank of England's rate hike path even more important. "He added that the Bank of England's policy and communication have completely dragged down the pound, and the Bank of England's actions to challenge inflation through rate hikes Too slow. "The Forex market is tired of waiting for the Bank of England to really take tougher moves. The Bank of England only meets the market's expectations of interest rate hikes, and investors' expectations of the Bank of England have been higher than the bank's actual rate hikes. This lowered the pound exchange rate,” he said.
In addition to the news-level impact, Watling said that the deep imbalance in the UK will also lead to further declines to parity against the US dollar. He analyzed that the US economy seems destined to fall into recession in 2023. The current market debate is whether the recession will be moderate or severe. But whether moderate or severe, recession will lead to a sharp tightening of liquidity.And the Feder 's quantitative austerity plan - its end to large-scale asset purchases that aim to support the economy and the market - will exacerbate this situation. The Federal Reserve's balance sheet reduction , coupled with interest rate hikes, will lead to the exhaustion of global market liquidity. During a booming period of abundant liquidity, economies can operate in severe imbalances. However, during a downturn, imbalance is the only thing that matters.
He said: "For the British economy, it is unfortunate that the UK is the worst among major Western economies in terms of imbalance. A good comprehensive indicator of imbalance is current account balance, and the latest data shows that the UK is The current deficit is equivalent to 8% of GDP (GDP). This imbalance caused problems in the UK economy before the financial crisis, when it accounted for 3.5% of GDP. Before the recession in the early 1990s, the imbalance was the result of problems. , this proportion is around 4.5% of GDP. To make matters worse, UK productivity growth (a measure of real wealth creation) has almost stagnated since 2010, meaning the UK economy has not created much new sustainable income to Pay the bill. ”
In view of this, Watling expects that the rapid appreciation of the US dollar against the pound will continue, and the pound may fall to parity against the US dollar or even lower in the next 6 to 12 months. He advised foreign exchange investors to hedge to buy products that can prevent the risk of losing money on UK government debt, namely the 5-year and 10-year credit default swap (CDS) tool.
