Last week, the British currency weakened against both the dollar and euro, as Bank of England head Mark Carney said eventual interest-rate hikes will be gradual, while data signaled the pace of economic growth in the nation slowed in the third
quarter.
This week, forex traders may be more likely to take hints from elsewhere, as the ECB meets amid speculation it will boost stimulus.
Josh O’Byrne, a London-based currency strategist at Citigroup thinks, for instance, that sterling will rise against the euro by year-end. The higher stakes on ECB stimulus mean there’s a possibility for officials to over-deliver, and so he favors bets the shared currency will drop.
The
pound has lost over 4% vs the dollar since the
middle of 2015 amid worries that U.K. economic growth is slowing and
will decrease the prospects for higher interest rates. Forward contracts
based on the sterling overnight index average, or Sonia, are not totally
pricing in a BOE interest-rate increase until after January 2017, says Bloomberg.
In the meantime, the possibility that the Fed will raise its borrowing costs by the Dec. 15-16 meeting is 74%. Analysts forecast that employment data due on Dec. 4 will show further gains in the U.S. labor market.
Stuart
Bennett, London-based head of Group-of-10 currency strategy at Banco
Santander, consider cable will weaken further:
"If Yellen doesn’t put the brakes on this dollar-buying frenzy there will be problems ahead. Plus, if the ECB overdoes it on Thursday and the euro plummets, other central banks” including the BOE “will have to respond," he noted.
Last week, the U.K. currency declined against all of its Group-of-10 rivals except the Swiss franc.
Santander’s Bennett thinks sterling will possibly fall below $1.50.
Citi’s O’Byrne noted it will rise near 69p per euro.
U.K.'s GDP rose 0.5% in the
three months through September, in line with the initial reading from the
Office for National Statistics.
According to the consensus forecast, data next week will show services activity expanded at almost the same pace in November from the previous month.
