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Foreign exchange analysts at JP Morgan have downgraded their forecasts for the Pound to Dollar exchange rate, largely as a recognition that the Dollar's ongoing advance has further to run.
"The regime of softer growth-higher inflation outlook has persisted and remains supportive of USD strength," says Meera Chandan, FX Strategist at JP Morgan.
As a result the investment bank have hiked their Dollar forecasts by an average of 1.5% across the forecast horizon.
The forecast upgrades for the Dollar come on the back of another strong run of gains for the U.S. currency:
- The Dollar index has risen to a high of 103.69 on Thursday, levels last seen in 2016.
- The Euro-Dollar exchange rate has fallen to five year lows at 1.0408 as a sell-off in the single currency entered a 6th consecutive day.
- The Pound to Dollar exchange rate fell to 1.2530, its lowest level since July 2020. (Set yor FX rate alert here).
JP Morgan's expectations for a stronger Dollar rest on an exceptional U.S. economic performance relative to the rest of the world, and associated responsive rise in interest rates at the U.S. Federal Reserve.
"Global growth-inflation backdrop is still tenuous and supportive of dollar strength," says Chandan.
Above: U.S. growth exceptionalism can benefit the Dollar says JP Morgan.
Chandan notes in the past six weeks global growth forecasts have been downgraded and inflation forecasts have been upped further.
"We make significant forecast revisions to key USD pairs this month," says Chandan.
This includes: EUR/USD where third-quarter 2022's forecast is downgraded to 1.05 from 1.11 and quarter-one 2023 is downgraded to 1.10 from 1.13.
The bank's GBP/USD forecast for quarter-three 2022 is downgraded to 1.27 from 1.33 and the first quarter of 2023 forecast is down to 1.31 from 1.34 previously.
The downgrade to Euro and Sterling forecasts in part reflect growing evidence of stagflationary drags in the Eurozone and UK economies, say analysts.
Chandan says the UK's already-challenged growth and consumption outlook Is to be exacerbated by still-rising inflation.