British Pound Sterling

The outlook for the pound sterling (Currency:GBP) is broadly positive says an analyst note from Barclays. (For the latest FX forecasts, please visit our IMT site, access is Free via this entry path).

Currency market banter has recently been dominated by the issue of quantitative easing at the Bank of England, indeed, one would struggle to find an analyst who does not foresee an additional stimulus of 50 bn GBP being announced.


But what would the impact on the various currency pairs be?

The pound euro exchange rate is forecasted to remain unfazed according to Barclays:

"The MPC looks ready to ease policy further. This will weigh on GBP versus the USD rather than against the EUR.
UK prospects look brighter as long as the euro area crisis is contained."

But, it is against the Japanese Yen where the action is likely to be found.

Commenting on the outlook for the pound yen rate, Paul Robinson and Masafumi Yamamoto at Barclays say:

"The policy mix between the two economies could hardly be more different at present.

"The UK has very tight fiscal policy and extremely loose monetary policy; Japan has fairly loose fiscal policy and relatively tight monetary policy.

"That partly explains why GBP/JPY remains at such a low level but it is likely to lead to a rapid appreciation at some point.

"The trigger for a rapid appreciation of GBP/JPY could come from either economy. The MPC remains in safety-first mode and further  QE appears very likely now following the surprisingly close vote in the June MPC meeting.

"However, that is fully reflected in market prices and may prove a temporary period of  easing. Our economists expect significantly earlier and more aggressive rate rises in the UK than the market is currently pricing in.

"We recommended positioning for a potentially very large, long-running move by buying an 18m GBP/JPY 170 one touch in April, and it remains a trade we find attractive."

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