Sterling to remain under depreciation pressure until end-2022 – Commerzbank

Following the recent market turbulence, strategists at Commerzbank have notably adjusted their projections for sterling. They believe that cable could fall close to parity while EUR/GBP may reach 0.94 by year-end.

Potential for a moderate sterling recovery over the course of 2023

“We expect sterling to remain under depreciation pressure. The Bank of England will probably continue to balk at a more aggressive pace for its rate hikes due to the economic cooling, thus disappointing the market in its rate hike expectations. That will likely put short-term pressure on sterling, and we can imagine significantly higher EUR/GBP levels now.”

“However, we cannot imagine that government and central bank would sit back and just watch a further collapse of sterling. We assume that they will try and regain at least some market confidence. As the situation in connection with the energy crisis is likely to improve next year and as this factor is likely to be priced out, we see potential for a moderate sterling recovery over the course of next year.”

“In the short-term, the projections are subject to high uncertainty as it is difficult to predict what decisions government and BoE will take over the coming weeks.”

Source: Commerzbank Research