© Ross Walker
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We believe the Pound will most probably fall against the US Dollar. Partly due to the financial markets are pushing back the expectations of the timing of first rise in UK interest rates. Partly because the fact that we moved closer to the May 2015 general election, where may occur some concerns in markets about political risk. Moreover, the government begins to step up from its' planned fiscal tightening. That would tend to slow growth slightly, which may also influence the currency.
What will be the main drivers for the Pound during the fourth quarter of this year?
Certainly, the most important driver in the short term is expectations around the timing of interest rate moves. We anticipate that the US Federal Reserve will raise interest rates around the middle of 2015, but the ECB will not be raising it until the early 2016. Thus, we believe the interest rate differential, will be the main factor pushing the Pound lower. However, there are also some structural factors, for example, that UK has relatively large fiscal and current account deficits. These factors, I suppose, over time will definitely weaken the currency.
What are your forecasts for the EUR/GBP and GBP/USD for the fourth quarter of this year?
On the GBP/USD forecast, our official house forecasts are 1.55 at end Q1 2015 and 1.52 at end Q2 2015. Talking about the Euro, we expect less movement. We look for the Sterling to decline only slightly with the EUR/GBP rate coming down to around 0.78.