GBP/USD fell to around 1.17. HSBC economists expect the pair to continue falling. Changes in risk appetite, two-year rate expectations and commodity prices mostly point to a lower pound. Our bank and Bank of England forecasts point to a recession in the UK, which could also weaken the pound. Political factors may have a bigger impact on the foreign exchange market when the results of the Conservative Party leadership election are announced on September 5. The incoming British prime minister is expected to take meaningful easing, but such fiscal easing may simply be a reminder to the Bank of England of a structural problem plaguing the economy with a huge twin deficit.
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