As the joke says, it’s déjà vu all over again. Last year the
pound started strongly and this year it's done it again
In fact, it’s at a 16-month high against the euro.
As so many Antipodean expat readers of the column pointed
out at the time, last January the pound was still well down against the Aussie
and New Zealand dollars. But foreign exchange is always a relative game. It
depends on the currency pairing you’re interested in.
While the pound has entered the €1.20s and is expected to go
higher against the euro, it is slipping against the US dollar. Many
commentators predict the slide will continue during the year ahead as the
dollar continues to attract inflows from around the world.
But as a table compiled by Smart Currency Exchange shows,
this is by no means a uniform view:
GBP/USD Bank Forecasts for 2012
One month
Three
months
12 months
Barclays Capital
1.57
1.55
1.50
BNP Paribas
1.57
1.52
1.59
HSBC
1.59
1.60
1.66
UBS
1.54
1.52
1.62
RBC Capital Markets
1.56
1.54
1.56
TD Securities
1.55
1.52
1.67
The reason for sterling’s strength could be placed at the
door of decent economic data being trotted out as 2011 came to a close, much to
the surprise of analysts and economists.
As David Kerns, senior dealing manager at Moneycorp,
explains: “For once, it was this positive news driving the pound forward,
rather than negative stories emanating out from the eurozone or across the
pond.”
[…]
“The run higher for the pound has been as a result of the
recent run of good data and the continuing belief that the United Kingdom is a
sensible 'safe haven' from the problems in the eurozone. It is now almost
guaranteed that the UK economy will not see a fall in national output through
the last three months of 2011.
“Whether it can be maintained is the million dollar
question. Sterling started in a similar vein last year and was in fact the best
performing currency in the G10 through the first quarter. It was unable to
carry that forward however, as the eurozone crisis started to hammer confidence
and the European Central Bank hiked interest rates. The signs look better this
year, although we are not expecting the pound to go on a rampage through 2012.”
With the pound breaking through the psychological level of
€1.20 to £1, the main difference between this year and last year is that it’s
likely to be sustainable rather than a short-lived surge.
“Although the economic picture in the UK is not rosy, we
have the advantage of an undervalued currency and the fact that the
Government's cost of borrowing reduced sharply in 2011 to historic lows below
two per cent,” says Chris Towner, director of advisory services at HiFX. “In
fact, the UK Gilt was the best performing major government bond in 2011, rising
by 17 per cent. Had you bought Gilts and McDonalds shares last year, you would
have had a very good year. Who says boring doesn’t earn you money!”
While our economy is not in great shape, we are not facing
the mountain of problems that the eurozone is struggling to resolve. We’ve kept
our triple-A credit rating on the world markets, which makes us a safer bet
than the euro.
Towner adds: “Investors are concerned about the sovereign
debt crisis in Europe and the impact that this is going to have on growth going
forward, especially since Merkel in Germany has made it very clear that there
is not going to be any 'quick fix' to the issues.”
Sentiment towards the prospects of Greece leaving the
eurozone has changed from the Armageddon scenario everyone was predicting last
year when it was first mooted, into a more pragmatic shrug. If – and many think
it’s more likely when – it happens, Greece’s exit may be more of a whimper than
a bang.
[…]
[…]
“Last Friday’s employment report surprised to the upside,”
says Alistair Cotton, corporate
dealer at Currencies Direct, “and it
is looking more likely that we are now in an uptrend in the US jobs market
which is US dollar positive. With the US economy creating more jobs, the
prospect of more quantitative easing any time soon is receding, which will also
give the dollar a boost.
“If we do see the US economic picture improve over the
coming months that should also translate into further strength for the other
North American currency, the Canadian dollar. Canada will naturally benefit from
an uplift in economic growth in America, but secondary effects involving
renewed demand from emerging markets for its raw materials should help the
loonie in the first half of the year.”
HiFX’s Towner expects the pound to slide to around the $1.50
mark and adds “the Canadian dollar, although whippy, remains in a broad range
in GBP/CAD pivoting 1.60".
For sterling at the moment, when it comes to the exchange
rates, it seems to be a case of you win some and you lose some.
Report By Liz Phillips
Original Source: Telegraph - Forex Focus Please
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