British Pound Sterling

Please see the latest pound euro forecasts here, and the UniCredit forecast table here - access is issued via a Facebook gateway.

The data calendar will be surely heavy next week in the UK, with inflation, labour data, retail sales, the CBI Industrial Trends Survey and also the latest BoE minutes, but we do not think that any of these releases will likely be a major driver, as sterling will primarily remain sensitive to the new developments in the global risk picture.

According to an FX forecast note from UniCredit:

"Increasing risk aversion and a consequently higher USD will thus frustrate any cable pullback much above 1.56 and make a retreat back to 1.54 a more likely scenario.

"Cable could also suffer from the latest BoE’s intention to increase liquidity available to the economy, as suggested by Governor King, In turn, EUR-GBP will be even more sensitive to the evolution of the eurozone’s political picture: new EMU woes will easily trigger fresh sales below 0.80 and towards this year’s lows at around 0.7945, while EUR-GBP upside potential is likely to remain confined to the 0.82 area even in the event of a market-friendly result of the Greek vote."

From a technical perspective, the pound is set to advance against the euro according to William Moore at RBS, who says:

"The market is rallying nicely presenting better and better opportunities for short positions, still the resistance around 0.8222 looks very strong so stop losses nestled above there make sense for now.

"The pattern is a bearish flag pattern and flags are said to ‘fly at half mast’ suggesting that we are seeing a short term consolidation move within the bigger picture down trend.

"Incidentally the target almost coincides perfectly with 0.7695 which is the 2008 low and longer term objective. Watch the breaking of 0.8025 today and add to positions as the strategy from yesterday suggests through 0.7951."

Today's FX market action

Latest spots: Pound Dollar exchange rate - 1.5574.
Pound Euro exchange rate - 12375.

On Thursday, the governor of the Central Bank Mervyn King on conjunction with the Treasury presented joint steps to increase the amount of credit to UK banks and he conceded that there is a growing case for the MPC to resume quantitative easing to support the economy.

Recent surveys have indicated that the UK economy may be in a deeper recession than first feared with a bigger contraction in manufacturing. UK exports have suffered from the sovereign debt crisis engulfing much of Europe and the threat of contagion is growing following the steps taken yesterday to set aside £80 billion for commercial banks.

The BoE minutes of the June meeting will be watched closely next week and if more than two members voted to add stimulus measures this month, the Pound is likely to come under further selling pressure. In Europe, of course all eyes will be on the Greek vote this weekend, while bond yields in Spain and Italy are still at elevated levels. 

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