GBP/USD to decline further in the coming weeks and months – HSBC
On 20 October, Liz Truss resigned as UK Prime Minister, becoming the shortest-serving British PM in history. Despite policy U-turns, the GBP still faces structural concerns. Even when structural concerns become less dominant, cyclical forces may still weigh on the pound, in the view of economists at HSBC.
GBP downward pressure to stay
“The UK’s debt-to-GDP ratios are set to rise, and net gilt supply may exceed GBP250bn, a new record high. The UK’s fiscal deficit could land at around 6% of GDP. It is also worth noting that the UK’s core balance (i.e. current account balance + net foreign direct investment) has declined from a 2% of surplus to an around 8% of GDP deficit in the last two years. All these structural challenges are likely to continue to pull GBP/USD lower.”
“The GBP could suffer from a BoE tone that suggests the economic outlook may be even weaker than previously expected, and that the market is too hawkish on rate hikes.”
“Even when market focus is shifted from structural concerns to cyclical forces, a combination of weak growth and high inflation that the UK faces will likely see the GBP struggle.”
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FXStreet Insights Team
FXStreet
The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.
