The pound is expected to end the third quarter with significant losses against the dollar, as sterling bulls abandon their optimistic outlook for the currency. This shift in sentiment follows the Bank of England’s decision to pause its interest rate hikes. Goldman Sachs has revised its forecast for GBP/USD, predicting a path of 1.18, 1.20, and 1.25 in 3, 6, and 12 months, respectively. Previously, the bank had projected higher rates due to strong domestic data. However, weaker growth and a faster-than-expected slowdown in inflation have led to a less hawkish stance from the Bank of England.
The decline in the pound is likely to continue in the coming months, reflecting a shift from sterling bulls to bears. Goldman Sachs has officially shifted its outlook to become sterling bears, in contrast to its previous bullish stance. The bank now believes that rates have peaked and expects further declines in the pound’s value. Despite the possibility of a more ‘forceful’ response from the Bank of England if economic data exceeds expectations, recent indicators, such as weaker manufacturing data, suggest that the central bank’s decision to keep rates on hold was justified. ING, a global financial institution, supports this view, predicting that the tightening cycle in the UK has come to an end.
While there is a chance for the pound to recover if economic data outperforms expectations, the overall outlook remains pessimistic. Recent indicators and market sentiment align with the belief that there is little likelihood of a rate hike in November and only a 50% probability of a hike by December. This further reinforces the view that the pound’s decline against the dollar will continue. As sterling bulls abandon their optimistic outlook and join the bears in forecasting doom and gloom for the currency, the pound faces an uphill battle ahead.