British Pound in Decline: Today's Latest News and Professional Viewpoints

Here are the views of a number of currency analysts in the wake of the late February slide in the pound sterling exchange rate complex.

The British pound has fallen in dramatic fashion at the start of the new week as the uncertainty posed by the EU referendum is digested by currency traders who are clearly seeing any sniff of a Brexit as being a negative for the currency.

The prospect of a UK exit from the European Union has grown with economists at Citi upgrading their forecasts for an exit from 20-30% to 30-40%.

This increased risk premium is obviously being echoed across the market and the exchange rate must move accordingly; currencies are typically where domestic risks are most readily expressed.

The pound actually witnessed its single worst day of declines since February 2009.

News that Boris Johnson, the vote-winning London Mayor, is joining the Out team has reignited selling pressure taking a number of key GBP pairs to critical levels, which by the looks of things on Tuesday morning, are eroding.

The pound to dollar exchange rate is in the red again on Tuesday, but the pair is still above the key 1.41 level. This is a significant area of support which could arrest declines.

If not, we could be seeing levels as low as the 1.22 forecast by Handelsbanken.

The pound to euro exchange rate is also witnessing a key support level being tested. 1.28 has been attempted on many occasions by euro bulls but they have been thwarted by the pack of buy orders nestled at these levels. Again, a crack below here will trigger a kind of trap-door effect. Our analyst Joaquin Monfort reckons a break invites 1.25 and then 1.23.

Elsewhere we are watching a continued march lower against the commodity currencies with the pound in decline against the rand, Australian and New Zealand dollars.

Analyst Reactions and Shifting Forecasts

Commonwealth Foreign Exchange point out that the EUR/USD is sharply lower as markets wake up to the fact that a Brexit is as bad for the EU as it is for the UK:

"The euro shed over a percent against the greenback and fell to a three-year low against the Japanese yen, dragged lower by mounting worries about a possible Brexit. The U.K. leaving the 28-member bloc seriously increases the risk of other anti-EU movements across the Europe gaining traction and could trigger a domino effect of departures from the political bloc."

James Rossiter at TD Securities concede that his team may have been overly optimistic on their initial GBP/USD forecasts in the wake of recent developments: 

"We think the GBP is likely to exhibit an asymmetrical response to Brexit risks in the weeks ahead, showing greater vulnerability to indications that the ‘Leave’ camp may be gaining ground than to hints that the ‘Remain’ contingent is holding firm. These developments introduce important downside risks to our GBPUSD forecasts of 1.45 for both Q1 and Q2 of this year as well as the trajectory beyond that point."

Lucy Lillicrap at AFEX eyeing a target for GBP/USD at 1.40:

"Intermediate Sterling bearish trends persist and thus even if prices manage to avoid re-testing the prior 1.4075 area lows initially an eventual break lower remains readable as the psychological 1.4000 level then comes into focus next."

Connor Campbell at Spreadex sniffs a bit of an overreaction in the GBP selloff:

“Whilst the jovial Johnson has roundly rogered sterling this Monday following his Brexit-backing bombshell, causing the pound to sink to a 15 month low against a basket of currencies following investors’ violent (and arguably over-pronounced) reaction, the FTSE held strong, starting off the busiest earnings week of the season (nearly a fifth of the index’s top 100 reporting in the next few days) in style.”

(Over-reaction indeed, a telephone poll, conducted on Saturday by Survation, suggests the level of support to stay in the EU at 48%, to leave at 33% and undecided at 19%. Will Johnson swing this?)

David Buik at Panmure Gordon is delighted that Boris Johnson has boosted the case for the Out campaign:

"Brilliant Boris Johnson offers hope - articulate & passionate! He's right! This is 'Last chance saloon' to grab back control of our destiny!"

Sam Hill at RBC Capital sum up how investors should best approach the markets in the present conditions:

With both Michael Gove and Boris Johnson coming down on the “Leave” side of the debate, and almost half of the Conservative MPs, it is understandable that Sterling’s initial move has been lower. As we said in UK: The Brexit files, “uncertainty is the only certainty” where the economics of Brexit is concerned.

Lauri Hälikkä at SEB says the move by Johnson is a body-blow to Cameron:

“Even before the campaign started, Cameron has suffered his first defeat as Boris Johnson, the popular and influential mayor of London, declared yesterday that he will be campaigning for a Brexit. It was a major setback for Cameron who had hoped to enlist Johnson to those who want the UK to remain in the EU.”

Kit Juckes at Societe Generale is looking for GBP/USD to test 1.30:

“I think we are likely to see further sterling weakness ahead of the vote itself, as the debate rages and uncertainty undermines confidence. I can't imagine the opinion polls moving decisively enough in either direction for clarity to emerge before June 23.

“In the process, I expect to see GBP/USD break 1.40 and EUR/GBP break 0.80 between now and then - possibly both at the same time. On a ‘Brexit' I'd look for GBP/USD to trade to 1.30, at least.”