Where to for the pound sterling? Analysts at RBS hope they have the answer in their latest sterling forecast note, released today.
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Today sees the pound advance against the euro in the wake of the massive bailout announced for the Spanish banking sector - it would seem that sterling is more of a beneficiary than the euro itself.
The same risk-on environment has seen the pound dollar rate advance, but, RBS believe this will be temporary move.
"A Spanish bailout can be risk positive on reduced headline risk. GBP/USD may have upside short-term as a result," says Robson.
In fact, with regards to the GBP vs EUR and USD, sterling looks to be close to fair value.
Nick Mannion at RBS says:
"GBP now looks broadly fairly valued against the EUR, USD and JPY according to our short-term models, leaving us with a more neutral outlook on GBP.
"However, rising Spanish CDS are continuing to put some downward pressure on EUR/GBP fair value. Developments around Spain’s banking sector bailout will remain important in this regard, although with rate spreads the dominant driver in our view, we do not look for a sustained break below 0.80."
GBP remains tightly correlated with interest rate spreads against all G10 currencies, both for 2y and 5y rates.
And thus, going forward it is central bank action that will be key for sterling.
"Recent correlations suggest that EUR/GBP and GBP/USD have been beholden to the overall risk environment and the relative policy responses of the ECB, BoE and Fed. This seems unlikely to change short-term. BoE MPC minutes published on June 20th could be market moving, as may CPI the previous day. While GBP/USD looks currently fairly valued, EUR/GBP is starting to look a little expensive again."