GBP/USD Rate Forecasts Downgraded at Major European Bank

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Foreign exchange analysts at a major European investment bank have lowered their forecasts for the British Pound against the U.S. Dollar, citing the deterioration in the UK's economic trajectory.

New Analysis from Intesa Sanpaolo, the Italian-based lender and financial services provider, finds declining UK growth prospects and an uncomfortable inflation picture means the Pound will end up lower than they previously anticipated.

"We have also revised down our forecasts for the pound against the dollar," says Asmara Jamaleh, an economist at Intesa Sanpaolo, in a note out September 05.

The call came on the same day the Pound to Dollar exchange rate (GBP/USD) reached a new low of 1.1423, ensuring a long-running downtrend remains intact.

This was also the day it was announced Liz Truss would become the UK's next Prime Minister, with markets hoping Truss' appointment would bring to an end a period of uncertainty for the economy.

Jamaleh says this uncertainty has played a role in Sterling's recent underperformance.

But it is a belief that Truss will not materially alter the economic outlook that ultimately drives Intesa Sanpaolo's forecast downgrade.

Specifically, Jamaleh notes the UK is expected by the Bank of England to enter recession at the end of this year.

Even if Truss enacts new measures to support the economy, which is widely expected, most economists say this would make the recession shallower, and not prevent it altogether.

For Intesa Sanpaolo this should ensure an ongoing depreciation in Sterling's value.

The bank lowers its forecasts for the Pound-Dollar exchange rate to 1.12, 1.10, 1.18 and 1.24 on a 1 month, 3m, 6m and 12m horizon.

This is down from 1.18, 1.23, 1.27 and 1.30 previously.

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