Pressure on the pound to persist

We think the markets are wrong to expect the Fed to keep interest rates at their peak for almost as long as the Bank of England. If so, then the recent downward pressure on the pound from the decline in UK relative interest rate expectations will soon fade. That said, we still think the pound will weaken from $1.23 now to around $1.22 by the end of the year as a further softening in the global economy boosts demand for US dollars.