GBP/USD could drop to the 1.10 zone in next few months – Scotiabank

Analysts at Scotiabank are out with their outlook on the British pound, leaning bearish amid a variety of discouraging fundamental factors.

Key quotes

“Beyond the stagflation risk, the GBP will not react well to renewed equity market weakness as central banks persist with interest rate increases.”

“The domestic political backdrop remains unhelpful.”

“Broad, trade-weighted index (TWI) measure of the pound could fall another 4-5% broadly or so before reaching the lows seen around the 1992 Exchange Rate Mechanism debacle, the 2008 financial crisis, the 2016 Brexit vote and the 2020 pandemic.”

“The fact that broad TWI losses stalled around 73.5 on each of those very different calamities for the pound suggests it is a point worth keeping a close eye on moving forward.”

“A return to that point in this cycle might imply — roughly — downside risks for GBP/USD to the 1.10 zone and upside risks for EUR/GBP to the 0.90 area in the next few months.”