The major international banks have expressed an increasing pessimism towards the British pound, as the United Kingdom approached the disclosure of its financial statement for the next year.
According to a report published by Bloomberg, the main reason behind this pessimism is due to the increasing concerns about the potential discounts of public spending and the decline in economic growth expectations, making the pound a less attractive option for investors.
The pound may decline to its lowest levels
Financial institutions such as GB Morgan Chase and Bilbao Feskaya Arginaria Bank recommended investors to sell the pound and buy the euro before the upcoming British financial spring statement on Wednesday.
The institutions expect that the pound will decline to 85 bonds against the euro, which is its lowest level since August 2024, at the end of next quarter.
It is expected that the British Treasury Secretary, Rachel Reeves, will announce a reduction in public spending and an increase in borrowing in line with its self -financial rules.
These cuts are accompanied by possible reports from the budget responsibility office on slowing economic growth, which may enhance bets on further reduced interest rates by the Bank of England, and thus weakens the attractiveness of the pound.
A more pessimistic look for the future
“This (the statement) will push the pound to decline, because it will not include any positive surprises. There is a possibility for the high exchange rate of the euro against the pound to 0.8470 in the short term,” said Roberto Kobo Garcia, head of the currency strategy at Bilbao Vizakaya Argentaria Bank.
This comes at a time when investors are betting on an economic recovery in the euro area, especially after Germany agreed to a historic plan to invest in hundreds of billions of euros in the fields of defense and infrastructure.
The pound has decreased by more than 1% against the unified European currency this month, heading towards its largest loss since last October.
Eric Nelson, a strategic expert at Wales Vargo Bank, noted that continuing concerns about the British financial situation with spending discounts and slowing growth “makes the pound the main drain valve of these pressures.”
Additional pressure from American customs duties
Bloomberg says that anxiety is not only limited to the British interior, as the customs duties that the United States intends to impose on April 2 may add another burden to the pound.
According to GB Morgan, imposing restrictions on British exports will exacerbate economic risks and weaken the currency more.
“If the fees are imposed, we see them worse for the pound, as the effect on growth will increase the financial pressure and have a long -term erosion.”
For his part, Cubo Garcia of Bilbao Fiskaya Arginaria Bank said that the British economy was affected by fees may push the Bank of England to reduce interest at greater rates than expected, pointing to the possibility of implementing 5 additional discounts if inflation slows down.
Inflation is high
The markets are currently awaiting the issuance of consumer price index data in the United Kingdom on Wednesday, as analysts expect the main inflation rate to remain at 3% in February on an annual basis, which is higher than the goal of the Bank of England.
On the other hand, inflation in the services sector is expected to decline slightly from 5% to 4.9%.
As for Kate Jax, head of the currency strategy at Societe General Bank, she confirmed that “the investor centers in the pound are uncomfortable given the deteriorating financial situation of Britain,” noting that the currency may decline more while reducing these centers.
