British Pound Sterling: Currency forecast for the week ahead for GBP, USD and EUR and commodity currencies

Last Updated on Friday, 10 February 2012 12:48 Written by Will Peters Friday, 10 February 2012 12:44

UniCredit Bank have released an exchange rate forecast note for the week ahead, commencing on the 13th of February.

Before we take a look at the forecast, here are the current key spot exchange rates: British Pound Sterling (GBP) in Euro (EUR): 1.1960. British Pound Sterling (GBP) in US Dollar (USD): 1.5778. British Pound Sterling (GBP) in Australian Dollar (AUD): 1.4820.

With regards to the short term British pound outlook:

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"The USD fall offered cable some base-building together with the BoE decision to increase its Asset Purchasing Program (APP) by only GBP 50bn to GBP 325bn despite speculation of a larger figure.

"Nonetheless, we still expect this increased liquidity to progressively affect cable, not only making a full break above 1.60 quite unlikely, but also gradually favouring a trend reversal back towards 1.55. In turn, the UK data calendar will be relevant in the coming days, with CPI (on 14 Feb.) and retail sales (on 16 Feb.). However, the most critical event will be on 15 February, when the BoE issues its Inflation Report, from which new indications of the bank's future intentions on its liquidity program might be derived. EUR-GBP will track EURUSD and cable behaviour, but room for further stabilisation above 0.84 is gaining momentum."

Looking at the forecast for the commodity currencies (namely the Australian dollar, New Zealand dollar and Canadian Dollar):

"Commodity currencies are enjoying a very good period at present, with more risk-on and the USD retreat adding fuel to the high-rating status of the Aussie, the New Zealand and the Canadian dollars. Yet, central banks have added a further boost, with the RBA refraining from cutting its Official Cash Rate (OCR) and keeping it steady at the current 4.25%.

"The bank did not rule out more easing should demand conditions weaken and inflation decline, but the current policy stance is seen as appropriate given economic growth close to trend and inflation close to target. The RBA outcome pushed AUD-USD above 1.08 with spillover effects to NZD-USD above 0.83 and dragged USD-CAD below parity.

"Although these three pairs are overstretched at this stage, there is no major drawback of staying long here: just exploit some occasional retreat below 1.07, 0.83, and above parity to buy back the AUD, the NZD and the CAD, respectively."