The pound may weaken against the dollar because of the British currency’s “very toxic mix of fundamentals,” Schneider Foreign Exchange said.
Sterling will drop to $1.55 by the end of the first quarter and reach $1.40 by the end of June, Stephen Gallo, head of market analysis at Schneider in London, said by phone.
The “boxed-in” Bank of England will struggle to contain medium-term inflation pressures and weaker-than-expected growth, he said. The U.K. will have “very low or negative real interest rates, so not a lot of yield support for sterling,” he said.
Risks to Schneider’s forecast include a strong first-quarter performance from the U.K. economy, which could support the currency, Gallo said. The pound tumbled today after data showed Britain’s fourth-quarter gross domestic product unexpectedly contracted.
The pound was 1 percent weaker against the dollar at $1.5822 as of 4:03 p.m. in London. Earlier it depreciated 1.5 percent, the most since May last year. Against the euro it was 1.3 percent lower at 86.40 pence.