The pound traded above 1.90 vs. the U.S. dollar in the second week of May, but has declined sharply since. UK economic fears were compounded by the London terrorist attacks, which on July 7 pushed Sterling down sharply to just above 1.73. It quickly rallied back to 1.77 as its risk premium fell slightly and the dollar was subjected to a corrective retreat. As of July 18, the pound had weakened again to below 1.75. It provides a longer-term picture of the pound/dollar rate.
The market has already priced in a great deal of bad Sterling news, and interest-rate expectations may have to be adjusted slightly. Sterling is vulnerable to a decline to 1.70 - 1.67 against the U.S. currency this quarter, with volatility remaining a high risk. However, there is room for some significant fourth quarter recovery.
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