HSBC Sees Pound Underperforming Against Dollar

HSBC is predicting that the pound sterling will continue to weaken in the coming months. According to Daragh Maher, Senior FX Strategist at HSBC, the pound is exposed and likely to underperform against major currencies, particularly the dollar.

The bank believes that the Federal Reserve's decision to remove the narrative of debasement has freed the US dollar from its restraints, allowing it to rise against most major currencies. This, in turn, puts pressure on sterling, which is expected to fall further against the dollar than the euro does.

HSBC identifies three key reasons for the pound's exposure: markets are already pricing in hikes from the Bank of England, labour demand is weak, and another real income squeeze follows if energy prices remain elevated. The bank also notes that the September business surveys showed a decline in UK activity, with the composite PMI falling to a three-month low.

Deutsche Bank has also recommended selling sterling against a basket of currencies, citing the risk premium around UK fiscal policy and the fading of the UK data pulse into year-end. The bank expects elevated energy costs, a deteriorating trade balance, and eroding fiscal headroom to weigh on sterling.