British Pound Sterling

The pound sterling (Currency:GBP) has managed to claw back some ground lost to the euro over the course of the morning. But, as risk-appetite has slipped away the US dollar has managed to maintain its strength.

Where to for the pound sterling going forward? Wells Fargo, in an FX outlook note, forecast further gains against the EUR: (The Wells Fargo FX forecast table is available on our IMT site, access is via this Facebook entry path).

Commenting on the forecast for the euro, Wells Fargo say:

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"Recent economic activity data has shown renewed softness, while a further moderation in inflation should be assisted by lower energy prices. With the Bank of England expectations starting to shift towards possible further easing, the pound’s near-term prospects against the dollar remain subdued. That said, we do see the UK economic outlook as less weak than that for the Eurozone, which should imply further sterling gains against the euro."

Turning to the pound dollar rate, analyst at the US bank note that GBP-USD technicals have turned bearish after the decisive break below the January bullish trendline and with the 20-day MA crossing below the 50-day MA.

Key support levels are seen in relative proximity — the early June low of $1.5269 and the January low of $1.5235.

Resistance is from the mid May high of $1.5848 and the late April high of $1.6302.

"EUR/GBP’s current trading range sees support from the May multi-year low of GBP0.7951, while resistance is from the June high of GBP0.8169," say Wells Fargo.

A continued drag on the UK currency remains the issue of monetary easing at the Bank of England (BoE).

Deutsche Bank say the likelihood of such an event remains high:

"Following Mervyn King’s speech at the Lord Mayor’s banquet last Thursday expectations of additional easing from the BoE are high. Our economist believes an additional GBP 50bn is likely before the end of the year. This month’s minutes, released on Wednesday, will provide an insight into how, if at all, attitudes towards additional policy action from the MPC have changed. Options are fair value in GBP/USD and EUR/GBP."

Looking at the spots a 13:20 London time we see the pound euro exchange rate is 0.9 pct down at 1.2410.

The pound dollar exchange rate is 0.36 pct lower at 1.5654.

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