GBP/USD forecast - page 21
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A 2016 Record-Low for British Pound to Euro Exchange Rate Today and More Losses are Forecast
Pound Sterling is seen sharply lower against the Euro at the start of the new week however coming days promise a busy calendar of both news headlines and economic data which will keep the currency volatile.
GBP hit a fresh 2016 low against the Euro on Monday the 3rd October as currency traders react to confirmation by the UK’s Prime Minister May that Article 50 of the Lisbon Treaty will be triggered before the end of March 2017 which will begin a two-year negotiation process to leave the EU.
While the clarity will be welcomed the positives appear to be overshadowed by May’s tough stance on the stance the UK will approach the Brexit negotiations.
The Government appears keen to make immigration a red line in negotiations which will likely mean the UK loses access to the European single market.
The freedom of movement of people between members of the single market is a fundamental cornerstone of the agreement.
The imposition of tariffs on UK imports by Europe, and potential loss of financial services passporting, would likely have a negative impact on economic growth over coming years.
All eyes now turn to Chancellor Philip Hammond who speaks at the Conservative Party conference around midday B.S.T, having already indicated that his predecessor’s fiscal surplus goal by 2020 will be dropped.
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GBP is on a road to hell. Or that is what they all desire but FED can not succeed to do : to have a week currency in order to export something more than debt
Reuters: "Everything people are hearing from the UK is not positive for its currency"
Reuters 'wrap' of the Europe/US sessions has some comments on GBP that are a decent summary of where the market is at, but notes optimism in the UK stock market
GBP: Premature To Fade The Drop Now But Get Ready To Long Close To 1.25
We continue to see downside risks emerging as we move deeper into Q4 and, as the government prepares its negotiation strategy ahead of invoking Article 50 in Q1, we expect market focus to remain more on political risks.
GBPUSD is now below our 1.28 tactical target and, while we see risk reward increasingly attractive to trade GBP from the long side as the pair approaches 1.25, for now we think it is premature to fade the move.
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Nordea, BNP Paribas: British Pound Oversold Against Euro, US Dollar, Should Recover into Year-End
Pound Sterling has been unduly punished recently and fairer value lies higher than seen at current levels argue Nordea Markets and BNP Paribas.
As the Conservative party conference comes to an end we stand back and witness the aftermath on the currency markets and see Sterling trade at fresh 31-year lows against the US Dollar having gone sub-1.27.
We have also seen EUR/GBP trade above 0.88 for the first time since Q1 2013.
The big question we now face is whether the sell-off is over, or just getting oiled.
The muscular October sell-off in Pound Sterling following Theresa May's announcement of a deadline in March 2017 for triggering Article 50, is unwarranted says Nordea Bank’s Aurelija Augulyte.
“UK PM Therese May in the annual Conservative conference effectively said that the Article 50 will be triggered by the end of March next year. We don’t think this is news nor a sufficient reason to panic – the UK data and policy decisions will be drivers in the near term,” comments Augulyte in a recent note to clients.
This somewhat goes against the grain of most of the analyst community who expect further weakness from the Pound.
Augulyte argues that the shock to the economy since Brexit has been largely confined to ‘confidence’ since manufacturing and industrial data, have largely recovered.
She puts this down to the impact of weak Sterling which has made UK exports more affordable.
This is likely to keep data positive in the months to come, reducing the chances of the Bank of England increasing monetary stimulus, a move which would be widely seen as negative for the Pound.
In the September BoE statement, the Bank said “a majority of members expect to support a further cut in Bank Rate…” and that future action will be data dependent.
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Goldman Sachs on why the pound is set to continue falling
Goldman Sachs on the pound:
We revised our forecasts for Sterling sharply lower in July, bringing in particular our 3-month forecast for GBP/$ to 1.20. In the period that followed, however, Cable refused to fall in line with our forecast for two reasons.
First, the Bank of England didn't ease in July, preferring to wait until its August meeting. This delay, though in line with the expectations of our UK economists, was nonetheless a disappointment for markets, and broke what up to that point had been clear momentum to the downside in GBP/$.
Second, the immediate aftermath of the Brexit vote saw a political vacuum in the UK, with some possibility that Article 50 might never actually be triggered. As a result, markets began to trade the short-term data flow, which was better-than-expected, and speculative short positioning in Sterling was squeezed.
Prime Minister May's announcement that Article 50 will be triggered by March next year has changed all that and refocused markets on what we see as one of the cleanest macro trades out there. In a sign of how times have changed from a month or so ago, discussion has now switched to how much downside there potentially is in Sterling, away from the recent focus on positioning and data flow.
We forecast that Sterling will fall about another 5 percent on a trade-weighted basis in the next three months, which translates into 1.20 for GBP/$.
This forecast reflects two considerations.
First, we see a continued catch-down of trade-weighted Sterling with longer-dated rate differentials (Exhibit 1), which in this low policy rate environment have become the main driver of G10 exchange rates.
Second, we continue to believe that a "sudden stop" of the kind seen in emerging markets - when a sudden stop in capital inflows forces a large devaluation of the currency in the face of a current account deficit - is unlikely in the UK, given that rule of law and institutions are stable. Exhibit 2 shows that our forecast for a further 5 percent depreciation of Sterling roughly splits the difference relative to the kind of devaluations that emerging markets tend to see during balance of payments crises. That said, as our economists have highlighted, the process of Brexit involves large uncertainty i.e., could easily turn out to be more complicated and drawn out than expected. Risks to our Sterling forecast are therefore to the downside.