GBP forecast: Analysts see cable on back foot to test 1.20

Dollar rally pause gives reprieve to pound, USDGBP remains close to weakest point since mid-March, further decline forecasted

The British pound (GBP/USD) steadied around the $1.21 level on Thursday, ending a series of consecutive declines, although it remains close to its weakest point since mid-March. This stabilization follows the release of a survey indicating UK business activity in September was less subdued than initially anticipated.

The final S&P Global/Cips UK services PMI business activity index, which assesses the sector's health, registered at 49.3 last month. This figure represents a marginal decrease from the 49.5 recorded in August but is notably higher than the preliminary estimate of 47.2.

Following the publication of the preliminary PMI estimate on September 22, the pound dropped to a six-month low against the dollar due to concerns of an impending UK recession. The pound was the worst-performing currency in the G10 in September, with strategists showing little optimism for the rest of the year.

Investors have also been digesting a range of economic data that presents a mixed picture of the U.S. labor market. In August, the unexpectedly higher number of job openings in the US, reaching 9.61 million, suggested resilience. However, the latest ADP report showed that US private employers only added 89,000 jobs in September, marking the lowest figure since January 2021.

Markets are also assessing indications of diminishing inflation in the UK, which has implications for expectations regarding the Bank of England's (BoE) interest rates. In September, the central bank chose to keep interest rates steady at 15-year highs but reiterated its commitment to further policy tightening if deemed necessary.

“The Bank of England is, amongst the G10 central banks, probably in the hardest position,” Jim McCormick, macro strategist at Citi, told CNBC’s “Squawk Box Europe” on Wednesday.

“They need to balance an increasingly weaker growth outlook with very sticky high inflation. I think part of sterling’s weakness is less pricing for Bank of England going forward, I think part of it is this recognition of low growth and high inflation, and I do expect sterling to weaken further from here.”

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GBP/USD forecast: Analysts see cable test 1.20 in October

Sterling fell 3.75% against the dollar in September, registering a decline not seen since the end of last summer.

According to a recent piece by CNBC, research group Capital Economics forecasted the pound to dollar rate to fall to $1.20 by the end of the year. The decline was projected more due of the global landscape, rather than because of expectations of lower interest rates versus the U.S. or eurozone.

The analysts added that they saw the BoE cutting rates to 3% in 2025, compared to the current expectation of 4.5% by the end of 2025.

Michael Cahill, G10 FX strategist at Goldman Sachs, was equally downbeat on the pound and forecasting a trade below $1.20.

“It’s back to Fall and we are PSL’ing — Predicting Sterling Losses,” Cahill said in a note. He said that is primarily because the BOE’s latest decisions have shown a dovish bent tilt that prioritizes growth and recent developments over the bigger picture.

The GBPUSD forecast from Rabobank were even more bearish than Capital Economics and Goldman Sachs — analysts at the bank saw scope for cable to fall to 1.19 in the next three months:

EUR/GBP forecast: 0.86-0.87 range projected for near future

The pound also slid 1.26% against the euro (EUR/GBP) last month, notching its weakest performance since December 2022.

Rabobank issued its euro to pound forecast in the same note:

On October 2, economists at ING published a broadly similar projection, saying the euro to pound rate would remain within the 0.86-0.87 range in October:

Given that the pound was the worst-performing currency in the G10 last month, MUFG didn’t hold back in its projections, and issued a highly bearish forecast on both GBPUSD and EURGBP:

At the time of writing, GBP/USD traded flat at $1.2134 , while EUR/GBP was trading at 0.86 (up 0.13%), according to MarketWatch data.

When considering foreign currency (forex) for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.