GBP/USD to plunge to 1.23 by mid-2021 – Handelsbanken

Economists at Handelsbanken have revised lower their forecast for the UK economy which implies GBP/USD moving to 1.23 by mid-2021 and EUR/GBP trading within 0.91 and 0.95. 

Key quotes

“Our forecast is for unemployment to peak at 8 percent in the latter part of this year and early 2021, as businesses assess demand for their goods and services in the longer-term.”

“Reflecting on the state of negotiations, and acknowledging that a last-minute deal remains a possibility, we now think, at least in the short-term, that the Brexit agreement is going to fall short of what had been hoped for and expected.”

“Our GDP forecast for the recovery in 2021 has fallen from 5.1 percent to 3.9 percent, and thereafter to 1.7 percent in 2022; not until 2024 is the trend rate of growth regained.”

“Much of the impact of the widening current account deficit will be taken by sterling, with our central forecast being that GBP/USD moves to 1.23 by mid-2021, while EUR/GBP will be 0.91 to 0.95 (the wide spread being an indication of the uncertainty of just what might be included in any mini deal).”

“In our Global Macro Forecast earlier this year, we expected UK interest rates to be maintained at 0.1 percent for the foreseeable future, and we maintain this view.”