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    Outlook for the pound is even worse than for the euro

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    They are accumulating options to buy euros with pounds (Image: Reuters/Benoit Tessier/Illustration)

    The prospects for the lb are so bad that now they seem worse than for euro.

    An impending recession in UK, inflation double digits and a new government are expected to hit the pound sterling in the coming months.

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    This leads currency traders to hedge against a decline in the British currency against the euro, even as Europe’s common currency is under pressure because of gas supply risks.

    They are accumulating options to buy euros with pounds, with the highest concentration around £0.85 to £0.87, up to 3% higher than today.

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    On the spot market, the euro has already gained nearly 1% over the past three days against the pound, rebounding from a three-month low hit in early August.

    The euro is expected to remain weak this year against the dollar. The continent is facing an energy crisis with the risk of Russia cut off the gas supply, while the European central bank has lagged behind its peers in raising interest rates to fight inflation, and there is also a political crisis in Italy.

    However, analysts are even more pessimistic about the pound’s outlook, with some predicting a drop to all-time lows against the dollar.

    The Bank of England has warned of a long recession, which raises the possibility of having to reverse course and cut interest rates next year.

    “Based on current prices and what we expect from gas prices going forward, we still see a case for the euro-pound to rise,” said Mikael Olai Milhoj, senior analyst at Danske Bank. He sees the euro rising to £0.86 over the next three months, in line with market consensus.

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    Source: Moneytimes

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