GBP/USD: are high levels justified?

Many analysts expected GBP/USD to fall significantly below $1.48 this year. However, pound rose by 7% since April and is now trading at the highest levels since January above $1.6200. This is about 3 cents higher than this year’s average. Yet, many specialists keep saying that such high value of GBP may be unsustainable given the state of the UK economy.

Morgan Stanley (forecast for the year-end: $1.50): “Sterling is starting to look a little more over-extended. There are some longer-term risk factors that could come back and put sterling back under some pressure.”  

HSBC (forecast for the year-end: $1.45): “A drop in real earnings, or wages adjusted for inflation, will weigh on the UK recovery and the pound.”

Commerzbank (forecast for the year-end: $1.63): The reduction in short-pound positions was “brought about mainly by U.S. dollar weakness.”


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