Credit Suisse have revisited their forecasts for the pound to dollar exchange rate following the UK's vote to leave the European Union on June 23rd and it looks like sub-1.30 levels are on the cards should analysts be correct.

The institutional downgrades to the British pound are coming in thick and fast with analysts at Credit Suisse telling clients they have slashed their projections for the unit.

The cuts to the outlook follow the decision by the United Kingdom to exit the European Union, a scenario that was not factored into the Swiss bank’s previous estimates.

Like the majority of institutional researchers Credit Suisse were factoring in odds of a Remain win at similar levels to that of bookmakers.

The subsequent political fallout in the UK is also more serious than analysts had expected.

Indeed, few saw the resignation of David Cameron as contributing to the already massive uncertainty facing the UK economy.

The resignation has triggered unprecedented turmoil in the opposition Labour party while the Scottish nationalists have wasted no time in setting in motion the break up of the United Kingdom.

The uncertainty threatens foreign inflows of capital - a much needed buoyancy aid for the British pound which is considered expensive when compared to the current account deficit.

In short - the UK imports far more than it exports and in order to prop the currency up we rely on foreign investment inflows.

As an example of how such foreign inflows would dry up we cite the decision by Singaporean lender UOB to freeze all lending on London property purchases.

Latest Pound / US Dollar Exchange Rates Live: 1.285▼ -0.63% 12 Month Best: 1.3514 *Your Bank's Retail Rate 1.2413 - 1.2464 **Independent Specialist 1.267 - 1.2721 Find out why this is a better rate * Bank rates according to latest IMTI data. ** RationalFX dealing desk quotation.

The current account deficit was confirmed by the Office for National Statistics on June 30th to still be running at a record level.

“We believe the UK economy's well-documented fiscal and current account deficits, combined with the fact that GBP is not especially cheap, leave room for still more GBP weakness,” says Shahab Jalinoos at Credit Suisse.

While the current account would tighten if UK domestic demand falls as the economy heads towards recession, Credit Suisse believe the fiscal picture would become even more of a headache given the likely negative output gap that would materialise.

With recession being forecast by a host of leading researchers the Bank of England will surely cut interest rates.

We had Governor Mark Carney announce on Thursday that he believed it appropriate that the Bank took steps to ease monetary policy by as soon as August.

“If the BoE responds with a rate cut and QE resumption as we expect, GBP will have fresh reasons to move still lower,” says Jalinoos.

Credit Suisse are lowering their 3-month GBP/USD forecast to 1.22 from levels 1.58 previously.

The 12 month forecast is lowered from 1.49 to 1.22.

With regards to the pound / euro exchange rate, the 3 month forecast is cut from 1.35 to 1.16.

The 12 month forecast is also cut from 1.35 to 1.16.

A Slower Grind to 1.30

GBP spent another day trading in a relatively narrow range and the strong downward momentum after Brexit is showing further signs of slowing.

The move lower will unlikely be delivered in one clean decline and as is always the case, there will be recoveries in Sterling that could offer respite for those watching the market looking to sell.

"In the near-term, an uneasy calm may return to the markets as investors realise that the post-Brexit political vacuum may keep the market status quo little changed over the summer," says Valentin Marinov, Head of G10 FX Strategy at Credit Agricole.

Credit Agricole have told their clients that GBP should not hit new lows just yet and could rally as an overextended market is prone to sporadic "short squeeze" actions.

This occurs when the market is so aligned in one direction that any reversals in the trend can often lead to periods of rapid appreciation as large numbers of traders are forced out of the market.

But, these moves should not be confused with a sustainable recovery and Marinov doubts that investors will discount Brexit risks to such a degree as to adopt a constructive view on GBP.

"Another leg lower to the 1.3000 target cannot be ruled out just yet," says Quek Ser Leang at United Overseas Bank in Singapore, "stop-loss is adjusted further down to 1.3450 from 1.3530."

Potential USD Strength Ahead as Fed Rate Hike Expectations Return

With the EU vote fading in importance for markets, we could well see a resumption of pound / dollar trade based on US interest rate expectations.

Interest rate expectations have long been a key determinant on GBP/USD value with the US dollar strengthening over recent months owing to growing expectations for an interest rate rise at the US Federal Reserve.

Essentially, money flows to where returns are higher, or where returns promise to be higher in the future.

With the Bank of England likely to cut interest rates again, potentially as soon as August, the move in favour of the USD has only accelerated.

"We may see US rate assumptions make a return to impacting markets in upcoming sessions; this comes as the highlight of the week ahead is the latest US labour market reading," says Jeremy Stretch at CIBC Markets.

Stretch says he believes the broader USD basket is to continue edging higher over coming days and only a really poor run of US data would likely compromise the recovery.

As such the GBP/USD could well test 30 year lows again.

The big event to watch is the release of the June Employment Situation report.

Markets are forecasting the headline non-farm payrolls figure to show the labour market grew by 178K, any disappointment should afford pound / dollar some breathing space.