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14 May 2015
GBP/USD seen at 1.40 by 2015-end – Capital Economics
FXStreet (Barcelona) - Anticipating renewed GBP/USD weakness due to a potential aggressive rate hike by the Fed and unstable UK political scenario, Kevin Ferriter of Capital Economics, predicts the pair to depreciate towards 1.40 by 2015-end.
Key Quotes
“We forecast that sterling will weaken in the near future. One reason is that now the Tories have a majority, they may impose an even tighter fiscal contraction over the early years of this parliament than they had outlined at the last budget. All else equal, this is likely to mean looser monetary policy in the UK.”
“In contrast, policymakers at the Fed are likely to respond to a strengthening labour market by raising rates more aggressively than investors currently expect. So the interest rate differential between the US and the UK is likely move the United States’ favour.”
“The second reason is that political uncertainty in the UK has not evaporated completely. The Conservatives have pledged to hold an “in/out” referendum on the UK’s membership of the EU before the end of 2017. As the referendum approaches, it may become a major concern for investors given the deep financial and trade ties the UK has with the rest of the EU.”
“Moreover, the Tories slim majority may not last – they need only lose 6 seats in by-elections for it to be whittled away. Since 1979, a government has typically lost around 12 seats per parliament in this fashion.”
“The bottom line is that we still believe that sterling will see renewed weakness. Indeed, we expect it to depreciate from $1.57 now to $1.40 by years-end.”
Key Quotes
“We forecast that sterling will weaken in the near future. One reason is that now the Tories have a majority, they may impose an even tighter fiscal contraction over the early years of this parliament than they had outlined at the last budget. All else equal, this is likely to mean looser monetary policy in the UK.”
“In contrast, policymakers at the Fed are likely to respond to a strengthening labour market by raising rates more aggressively than investors currently expect. So the interest rate differential between the US and the UK is likely move the United States’ favour.”
“The second reason is that political uncertainty in the UK has not evaporated completely. The Conservatives have pledged to hold an “in/out” referendum on the UK’s membership of the EU before the end of 2017. As the referendum approaches, it may become a major concern for investors given the deep financial and trade ties the UK has with the rest of the EU.”
“Moreover, the Tories slim majority may not last – they need only lose 6 seats in by-elections for it to be whittled away. Since 1979, a government has typically lost around 12 seats per parliament in this fashion.”
“The bottom line is that we still believe that sterling will see renewed weakness. Indeed, we expect it to depreciate from $1.57 now to $1.40 by years-end.”