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British Pound Outlook Remains Bearish as Growth Forecasts Weaken Further

Friday, 26 December 2008 14:41:32 GMT

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• Dec 26 - British Pound Outlook Remains Bearish as Growth Forecasts Weaken Further
• Dec 23 - Euro Holds Near Record Highs Versus British Pound, Both Remain Under Pressure Against US Dollar
• Dec 22 - Euro Holds Near Record Highs Versus British Pound, Both Remain Under Pressure Against US Dollar
• Dec 22 - British Pound/US Dollar Exchange Rate Forecast
• Dec 19 - British Pound the Worst Performer in G10 on Dismal Economic Data
• Dec 18 - British Pound Plunges to Record Low Versus Euro, Swiss Franc
• Dec 16 - British Pound Outlook May Hinge on the Bank of England's December Meeting Minutes
• Dec 15 - British Pound Continues to Reach New Lows vs Euro, UK CPI Could Weigh on GBP/USD
• Dec 12 - Pound Maintains Bearish Outlook vs. Euro, Dollar Ahead of BOE Minutes
• Dec 12 - British Pound Hits Fresh Record Low Versus Euro, BOE Meeting Minutes May Make or Break Cable Next Week
• Dec 11 - British Pound Falls to Record Low Versus Euro - Will These Moves Continue?
• Dec 10 - British Pound Faces Heavy Resistance at 1.49, BOE's Biggest Dove to Step Down in May 2009
• Dec 06 - Pound Threatens Six Year Lows As UK Recession Paces Global Decline
• Dec 05 - Euro And Pound Struggle To Keep Their Footing As Multi-Year Lows Draw Closer
• Dec 03 - Euro and British Pound Outlooks Hinge Upon ECB, BOE Rate Decision - What Will They Do?
• Dec 02 - British Pound Remains Under Pressure Ahead of BOE Rate Cut as UK Construction PMI Falls to Record Low
• Dec 01 - British Pound Holds Above Support at 1.4805, Downside Risks Loom
• Nov 28 - British Pound Outlook Remains Bearish Ahead of Bank of England Cuts
• Nov 26 - British Pound Sees Mixed Session As Fundamental Traders Weigh In On Dour GDP Revision
• Nov 26 - British Pound/US Dollar Exchange Rate Forecast

Written by David Song, Currency Analyst

The British Pound continued its move towards parity against the Euro and slid lower against the U.S. Dollar ahead of the New Year, which suggests that investors remain bearish against the currency as market participants widely expect the Bank of England to lower borrowing costs even further in January.

British Pound Outlook Remains Bearish as Growth Forecasts Weaken Further

Fundamental Outlook for British Pound: Bearish

- 3Q GDP Revised to -0.6% from -0.5%
- British Pound Tests Record Low Against Euro

The British Pound continued its move towards parity against the Euro and slid lower against the U.S. Dollar ahead of the New Year, which suggests that investors remain bearish against the currency as market participants widely expect the Bank of England to lower borrowing costs even further in January. Nevertheless, financial uncertainties paired with the ongoing downturn in the housing sector is likely to stoke increased selling pressures for the currency over the near-term as the economic calendar continues to reflect a dour outlook for growth.

The lowest interest rate since 1951 highlights the extraordinary efforts taken on by the central bank, and market participants anticipate policymakers to ease policy further as they do everything possible within their authority to mitigate the downturn in the economy. A Bloomberg News survey shows that 27 of the 38 economists polled anticipate BoE Governor Mervyn King and Co. to lower the benchmark interest rate by 50bp to 1.50% at the January 8th policy meeting. Meanwhile, weakening fundamentals have certainly dragged on the British Pound throughout the second half of the year, and the event risks scheduled for the following week could weigh on the currency as growth prospects deteriorate at a rapid pace. The BoE’s housing equity withdrawals index is projected to fall to -3.3B from -2.8B in the second quarter as a result of tumbling home prices paired with tightening lending practices, while consumer credit is expected to decline to 0.6B from 0.8B in October. As credit conditions remain far from normal, private sector spending, which is one of the biggest drivers of growth, is likely to remain subdued throughout the coming months, and would only heighten the downside risks for growth going forward.

From a technical standpoint, the British Pound is expected to remain range-bound in the week ahead, and should hold major trends against its currency counterparts over the near-term. Accordingly, as investors round-trip their open positions for the year, thin markets are unlikely to impel a drastic shift in trader sentiment, and the Sterling is likely to face headwinds ahead of the event risks scheduled for the coming week.