What do the analysts think? Page 2

Across the pond, the Federal Reserve has been debating whether to hike US interest rates, with predictions forecasting a 60% chance that this will be the case before the end of the year. Raising interest rates makes US government debt more attractive (due to higher yields) and, as a result, demand for the US Dollar will increase, negatively impacting GBP.

Meanwhile, the Bank of England continues to ponder its course of monetary policy action. Having cut interest rates in the immediate aftermath of the referendum, inflation has been widely forecast, most notably by the BoE Governor Mark Carney this past month; September Consumer Prices rising at their fastest in two years reflect this. Should inflation continue to rise, the BoE may be forced to raise interest rates, subsequently causing a strengthening of the Pound.

These factors explain why analysts’ forecasts for GBP are increasingly split.

What do the analysts think?

Cable

Since the start of October, Goldman Sachs has maintained that the Pound will eventually fall to $1.20, despite that fact that it is already undervalued according to their existing currency models. HSBC has an identical target of $1.20 by year end, falling even further to $1.10 by the end of 2017, whilst Credit Suisse’s one-year forecast predicts that the Pound will drop to $1.17.

An extreme prediction by Macquarie believes that the Pound could fall all the way to parity with the dollar once the UK enacts ‘Article 50’, allowing it to begin formal negotiations to leave the EU. This, of course, will not take place until March 2017 according to the UK PM.

However, some institutions have a much more bullish forecast for the pound. BNP Paribas this week claim that Sterling is undervalued and Cable could rise to $1.28 by the end of this year and $1.37 by end-2017. Lloyds and Barclays also have positive forecasts, predicting $1.25 and $1.24 by end-2016, respectively, and $1.30/$1.36 targets for next year.

GBP/EUR

Forecasts from HSBC, UBS and UniCredit all see the Pound heading back to parity with its European counterpart, predicting this will come about by end-2017.

Credit Suisse also believes that Sterling still has further to fall against the Euro, with the possibility that it could revisit to €1.05. Morgan Stanley also has an unfavourable outlook for the Pound, seeing the currency plumbing lows of €1.08.

However, Lloyds still predicts the currency pairing to rise, despite revising its forecasts down this week to €1.14 by end-2016 and €1.22 by end-2017. Other bullish brokers include BNP Paribas, forecasting the Pound to rally to €1.19 by the end of this year and €1.29 the next, while Barclays sees €1.15 achiveable by this year’s end before rallying to per-Brexit levels at whopping €1.32.

Note that these forecasts, sourced from Bloomberg, are subject to regular revisions as the political, economic and monetary climate in Britain, Europe and the US continue to change.

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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