Focus FX Exchange Rate Forecast

16 Martie 2010

RAIFFEISEN BANK S.A.

 

EUR/GBP

0.909 - 0.93 (June)

Last week, sterling continued its trend of depreciation versus the euro and is trading at EUR/GBP 0.909 today, back near the upper end of the trading range of 0.90 - 0.91 seen since the end of February. Surprisingly weak economic data undermined the pound at the beginning of last week. On Monday soft readings of the latest RICS house price survey pointed to a weakening of housing market dynamics. On Wednesday industrial production also fell significantly short of expectations, with a decline of 0.4% mom. On top of this, there was also an unexpectedly strong drop in exports in January, which once again dashed market hopes of some positive impact from the weak GBP on the country's export performance.

In our view, a combination of patchy economic recovery and political/fiscal uncertainty (the mounting likelihood of a stalemate in the upcoming elections is delaying prospects for consolidation of the budget) is responsible for the strong depreciation of the pound (-4.1% versus USD and -3.8% versus EUR during last month). Over the medium term, these factors should continue to drag on the pound. According to information provided by the government, the pre-budget report will be released on 24 March. Coming shortly before the elections, this report is not likely to contain many specifics and will thus hardly help to ease the (unduly strong) worries about the UK's public finances. On top of this, the market is currently reacting in a very skewed manner when it comes to UK economic data: good news for sterling does little to strengthen the currency, while bad news does all the more harm. In line with this, the market is positioned strongly against the pound. For example, net short positions on the pound versus the US dollar hit a volume of67,549 contracts yesterday, the highest level ever registered. Over the short term, however, this suggests that there will not be further losses for GBP, as most investors are already positioned against the currency (contra-indicator).

 

Trading Ideas

Note: This list contains only the strongest trading ideas for the markets that we cover. Therefore not every market forecast that implies a buy recommendation is also listed as a trading idea! Trading ideas may also differ from our quarterly forecasts. as the time horizon can be different. The time horizon of the trade is at least two weeks. But not more than 3 months.

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