Pound Dollar Rate Forecast to Hit Low at 1.43 in 2015 by Barclays

A new forecast from the currency analyst team at Barclays suggests the pound dollar rate (GBP/USD) will come under heavy pressure in 2015.

The pound sterling found some support against the US dollar at the close of 2014, however the commencement of the new year saw a sharp move lower.

The move is consistent with the predictions made by the majority of forecasts issued by leading investment banks who see further declines through 2015.

And now a new prediction from Barclays warns of 'substantial' pressures.

First though, a look at the pound and dollar rate at the time of this article's most recent update:

• The pound to dollar exchange rate is seen at 1.5373.
• Inversely, the US dollar to pound sterling exchange rate (USD/GBP) is at 0.6598.

Be Aware: All currency quotes seen here are taken from the spot market - your bank will subtract a spread at their discretion. However, an independent FX provider will guarantee to undercut your bank, thereby delivering up to 5% more currency in some instances. Find out how.

Barclays Forecasting Heavy Pound Dollar Declines

Barclays, in a note to clients, say they are geared for a weaker GBP/USD rate in the year ahead:

"Although we retain a relatively constructive outlook for the UK economy, and a tightening labour market continues to suggest that wage growth will accelerate, the BoE has become increasingly dovish in recent months.

"Indeed, the central bank substantially revised lower its inflation forecasts in its November Inflation Report and showed little urgency to tighten policy. In response, our economists have pushed back their expectations of rate hikes to Q3, from Q1 previously.

"As such, we now forecast substantial GBPUSD depreciation over the next 12 months and much more moderate GBP outperformance versus the EUR. A further deterioration in the euro area economy, given that it is the UK’s largest trading partner, continues to pose downside risks to GBP vis-à-vis non European currencies."

Why Have Barclays Cut Their Sterling Forecasts?

Analysts at the bank have revised their GBP forecasts significantly lower to reflect:

1) Delayed expectations for BoE rate hikes from Q1 to Q3 2015;
2) A lower path for inflation; and
3) Risks emanating from both domestic politics and the soft euro area economic outlook

"We now see EURGBP falling only to 0.75 by end-2015 and GBPUSD falling down to 1.43," says the Bank.

The Upside Risks

That said, currency analysts do caution that there are upside risks to their latest forecasts:

Recently revised GDP data suggest a much stronger post-crisis recovery that has been based more on business fixed investment than on consumption, relative to the previous data

UK economic resiliency to foreign shocks and evidence from survey data that wage growth may be building in the background raise the risk that the BoE may turn hawkish again

Accordingly, we see both upside and downside risks to our forecasts for GBP, and expect that the coincidence of a strong domestic economy and risks from the euro area and domestic politics may lead to greater-than-usual volatility in GBP in the year ahead.

Below are the forecasts issued in November 2014