Sterling to languish on gloomy economic picture

11 Jun, 2012

Sterling will not recoup any of its recent losses against the dollar over the coming year as the outlook for the British economy remains gloomier than that of the United States, a Reuters poll found on Thursday. The poll of around 60 foreign exchange strategists, taken this week, saw the pound trading at $1.55 in one- and three-months time, nudging up to $1.56 in six-months and then to $1.58 in year.
While Britain's economic prospects remain better than the struggling euro zone, sterling is not expected to do much against the euro either, trading around 80 pence over the 12-month forecast horizon, not far off 81p on Thursday.
The pound lost over 5 percent against the greenback in May to hit a four-month low on June 1 of $1.5265, but has recouped some of those losses to around $1.55 on Thursday ahead of the Bank of England's latest monetary policy decision.
While the majority of economists expect the BoE to take a pass on increasing the size of its bond purchase programme this month, a handful of forecasters say an additional 50 billion pounds of stimulus is likely at 1100 GMT.
Britain's dominant services sector grew at an unexpectedly steady pace in May and retailers saw a solid bounce-back in sales, data showed earlier on Thursday, reducing the chance the Bank will announce more economic stimulus.
The change in the consensus forecasts since last month's poll was mostly a reflection of the recent moves in the pound.
"It's not going to be a sterling problem, it will be a dollar appreciation. The perceived quality in the US economy is better than the perceived quality of the British economy, said Pablo Orgeira at BCV Group.
His call for the pound to be worth just $1.38 in year was the lowest 12-month outlook for sterling since February.
The British economy fell back into recession at the start of this year. The latest Reuters poll predicted it would grow just 0.4 percent this year and 1.6 percent next.
That is much slower than the 2.3 and 2.4 percent consensus for the US economy.
But far more dire prospects for the euro zone, where speculation is still running high about Greece leaving the 17-member currency union, has made sterling look more attractive as an investment.
Uncertainty in financial markets has led to a wide range of forecasts, with the one-year outlook going from $1.38 to $1.71. Both the strongest and weakest forecasts were lower than in May's poll.
The euro suffered its biggest monthly fall since September 2011 of around 7 percent last month as Spaniards sent money abroad in droves, worried about the health of their banks.
A potential Greek exit from the common currency has also dented confidence although a succession of Reuters polls of economists, fund managers and money market traders said this was unlikely.

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