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GBP: Time to shine short-lived - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 24, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Viraj Patel, Foreign Exchange Strategist at ING, suggests that the hawkish BoE re-pricing will provide a short-lived impetus to GBP in early 2016 while another bout of wage inflation in 1H16 will seal the deal for a 2Q16 BoE lift-off.

    Key Quotes

    “The UK economy remains one of the bright spots in the developed market space, buoyed by a dominant service sector and ongoing adjustment in the labour market. Headline inflation is set to recover from its current low levels as the transitory effects of low energy costs and prior GBP strength begin to dissipate at the turn of the year. Another bout of wage inflation in 1H16 will all but seal the deal for the BoE to begin raising rates in 2Q16.”

    “GBP’s outperformance on the crosses should continue in the early part of 2016 as the hawkish BoE re-pricing offers the potential for one last hurrah before markets turn their attention to the looming Brexit risks. Should a prospective vote on the EU referendum be scheduled for late 3Q16, we envisage a scenario where a number of bearish GBP factors could materialise at once and drive GBP/USD down to 1.40. In contrast, EUR/GBP may remain fairly resilient to any negative GBP news in 1H16 given our bearish EUR/USD view over this period. After trading down to 0.68, we think the 2H16 recovery in the EUR will also see EUR/GBP correct higher, with our end-2016 forecast for the pair at 0.72.”
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