The pound sterling is in peril as the UK tightens its coronavirus restrictions once more. Now the Bank of England (BOE) raising interest rates does not appear as assured as it did only a few weeks ago.
The Pound Sterling Is Expected to Fall as a Result of the New Lockdown Order
Prime Minister Boris Johnson recommends people working from home to halt the spread of the Omicron variety. This is likely to send sterling to its first yearly loss since 2018. This policy is raising fears about the UK’s stuttering economy, and there is more pessimism that the BOE will raise rates this week, which was very certain at some points.
There is a prediction by the Mizuho Bank and the Canadian Imperial Bank of Commerce that there will be further dips in the pound sterling in some weeks. This is the highest rate of pessimism for the pound in a year. The Central Bank’s policy has therefore affected the expectations of pound traders.
Though there are tougher lockdown policies in other parts of Europe, the European Central Bank is expected to stay dovish. In the United States, hawkish views towards the Federal Reserve continue to rise, supporting the dollar.
Neil Jones of Mizuho says there is a prediction that due to the lockdown policy imposed on the UK unexpectedly, the sterling is likely to fall to $1.295, which is a 13-month low. Another MUFG official, Lee Harman, says the fall of the pounds will likely match that of November last year, which was a result of doubts concerning the agreement on Brexit. However, he says he expects a tightening plan by the Fed by next week.
Strategists have lowered their pound targets by around 4% to $1.35 by the end of March, down from $1.40 three months earlier. According to Ebrahim Rahbari of Citigroup, the pound is the least favored G10 currency against the dollar, with a fair value of $1.29, more than 2% lower than current levels.
Barclays Predicts the Pound Sterling Will Recover
However, not everyone is pessimistic. Barclays expects the BOE to begin hiking rates by February next year, and inflation will reach its highest by June, which will benefit the pound. They believe that the cancellation of the previously planned Thursday's meeting would not necessarily spell a financial decline for the financial markets. However, doubts remain about the ability of the BOE to tighten in 2022.
The pound sterling is predicted to plunge in the immediate future and a recovery is expected towards the first quarter of next year.
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