Hian. How’s this for some Monday morning blues? The Brexit situation continues to make things worse for the UK and the pound is just one more casualty of the referendum.
Being as I no sabi English and I am just a lowly blogger, I’ma let Business Insider tell it. The grammar is plenty but the end result is: the pound continues to fall and fall and fall. In fact, there is speculation from analysts that £1 might soon be worth $1 for the first time ever!
The race to the bottom with predictions of how low the pound can go continues.
Sterling is already hovering close to 31-year-lows against the dollar in the wake of the UK’s shock vote to leave the European Union, but on Thursday Deutsche Bank predicted the currency will fall much lower.
The investment bank forecasts that the pound will reach $1.15 against the dollar by the end of the year, against the current exchange rate of just shy of $1.30, and it reckons a euro will buy you 90p, up from its current rate of 85p.
The forecast follows an equally pessimistic call from Goldman Sachs earlier in the week, which said the pound could hit $1.20 soon.
Deutsche Bank’s George Saravelos says his forecasts “look aggressive”, but says: “Our assumption is that the UK is undergoing an unparalleled negative “terms of trade” shock, which requires GBP to reach historical (under)valuation extremes. As the charts below show, there is much more to go before GBP is considered excessively “cheap”.”
PPP, the light blue line, stands for purchasing power parity, “which measures the exchange rate that equates the price of a “big mac” between two countries.” In other words, whether real prices of goods differ between nations.
The Bank of England and many Leave campaigners have made the case that the economic impact of leaving the European Union could partially be offset by the devaluing of the pound, which would make British goods and services cheaper to export.
But Deutsche Bank is saying the pound needs to go even lower for this to be true. The light blue line more or less matches up with the current exchange rate, but Saravelos’ argument is they need to deviate to encourage trade. Basically, British made goods need to get a lot cheaper before they become attractive to overseas buyers.
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