© P.Kinsella/M.Sneyd
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P.S.: We expect that in the near future the central bank officials could increase the asset purchase programme. However, it is doubtful whether this will have any material impact.
M.S.: Our economists are looking for quite substantial easing from the BOE going forward. It seems that with Mark Carney joining the central bank, all the options are open for the BOE. I believe the next focus for the market is the 20 March Annual Budget Release, where we are looking for a change in the way the BOE operates, targets inflation and perhaps even adds in growth into the policy objectives. We expect that a ‘de-facto' increase in the BOE target may be introduced by applying bands around the central bank's current 2% target. This is going to mean that the door is open for the BOE to ease policy further going forward.
What key events will determine Pound's performance in the near future?
P.S.: In our opinion, growth differentials is one of the key issues. So far this year those currencies, which have poor fundamentals as well as weak growth prospects, have been sold in favour of currencies with better growth prospects. Hence, this means that more downside risk in GBP/USD is a distinct possibility.
M.S.: We think that Annual Budget Release on 20 March is particularly the key event. We have also seen recently the dire U.K. industrial production data. Thus, we believe all of these events are likely to keep downward pressure on the Pound. When we look our FX positioning analysis, we see investors currently holding short positions in Sterling, but these positions are by no means at an extreme. This means to us that the Pound can remain under pressure as investors look towards the 20 March budget.
What is your forecast for USD/GBP and EUR/GBP for the end of March and for the end of the year?
P.S.: Our forecast for EUR/GBP for the end of March is 0.87, while we expect the pair to fall towards 0.84 by December. As concerns GBP/USD, our outlook for the end of the first quarter is 1.59, whereas by the end of the year we anticipate the cross to trade at 1.52.
M.S.: We expect the Cable to remain around its current level at 1.50 throughout March, based on the expectations that the U.S. Dollar comes under a bit of pressure.
As for the EUR/GBP, we are looking for the Pound to soften slightly pushing the cross higher towards 0.88. Going further into the year, we expect the Pound to remain quite weak, but mostly against the Euro. Thus, by the end of this year we think EUR/GBP is going to be trading around 0.85. However, it is against the Dollar where we could see the Pound recovering some of its recent loses and trading back around mid-1.50s, perhaps even as higher as 1.60. This move higher in cable is going to be driven more by the U.S. Dollar side rather than the Sterling side, as we are looking for the Fed to be continuing with its QE purchases this year into 2014. We expect that to put downward pressure on the Dollar and cause an unwind of the Dollar's recent strength.