Fundamental Forecast for Pound: Bullish
GBP/USD Hit Highest Level Since 2008 As UK Construction Data Surprise
GBP/USD Long Term Measured Level at 1.7300
The GBP/USD extended the advance from June, with the pair climbing to a fresh yearly high of 1.7175, and the bullish sentiment surrounding the British Pound should gather pace throughout the second-half of 2014 as the Bank of England (BoE) looks to normalize monetary policy sooner rather than later.
With the economic docket expected to show a further pickup in U.K.
outputs, the British Pound may catch a bid ahead of the BoE interest
rate decision on July 10, but we may see the central bank refrain from
releasing a policy statement once again as the Monetary Policy
Committee (MPC) is widely expected to keep the benchmark interest rate
at 0.50% while maintaining its asset-purchase target at GBP 375B.
Nevertheless, it seems as though we may see a greater dissent at the
July meeting as BoE Chief Economist Andrew Haldane sees the U.K. growing ‘3% plus,’ while Deputy Governor Jon Cunliffe
continues to highlight the threat of rising home prices, and we may
see a more material shift in the policy outlook as the economic
recovery gathers pace.
At the same time, negative deposit rates in the Euro-Zone may further
heighten the appeal of the sterling as we remain in a yield-seeking
environment, and we will continue to look for a further decline in the
EUR/GBP as well as the European Central Bank (ECB) pushes into uncharted
territory. With that said, the GBP/USD may make a more meaningful run
at the psychologically important 1.7200 handle should we see another
batch of positive developments coming out of the U.K., and we will
retain our approach of looking for opportunities to ‘buy dips’ in the
British Pound amid the growing deviation in the policy outlook.
