3 Aug 2015
Sterling's performance, third best in the board - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank explained that on a 12mth view the pound is the third best performing G10 currency after the USD and the CHF.
Key Quotes:
"The performance of the CHF is the result of the SNB being forced to walk away from its former EUR/CHF1.20 floor in January. The strength of the USD and the GBP reflects the fact that these are the only two G10 central banks not to have either cut rates or used QE this year. The fact that the Fed and the BoE are preparing the ground for an interest hike is in stark contrast to the easy policy biases currently maintained by all other G10 central banks. Going forward there is risk of further policy easing from central banks such as the RBA, RBNZ, Riksbank, Norges Bank and SNB while the ECB and the BoJ remain committed to huge asset purchasing programmes. Cuts in interest rates by a variety of other central banks have made sterling yields relatively more attractive so, even without any policy action from the BoE, it is likely that sterling will appreciate further in the coming months which will add to pressure on UK exporters.
In the second quarter UK GDP expanded by a robust 0.7% q/q. The strong headline growth sparked another round of hawkish headlines. However, in view of the headwinds coming from sterling strength, fiscal tightening, slow growth in the Eurozone and a weakening pace of expansion in China, we would argue that there is still plenty of reason for the MPC to remain wary about hiking interest rates prematurely.
While the market is likely to watch wage and productivity data closely in the coming months, for the time being we maintain our view that BoE rate is likely to remain on hold until May 2016. However, since the Bank is still likely to be the second G10 central bank to be out of the rate hike stalls we expect sterling to remain firm against a host of other currencies. We expect EUR/GBP to test the 0.70 level by year end. "
Key Quotes:
"The performance of the CHF is the result of the SNB being forced to walk away from its former EUR/CHF1.20 floor in January. The strength of the USD and the GBP reflects the fact that these are the only two G10 central banks not to have either cut rates or used QE this year. The fact that the Fed and the BoE are preparing the ground for an interest hike is in stark contrast to the easy policy biases currently maintained by all other G10 central banks. Going forward there is risk of further policy easing from central banks such as the RBA, RBNZ, Riksbank, Norges Bank and SNB while the ECB and the BoJ remain committed to huge asset purchasing programmes. Cuts in interest rates by a variety of other central banks have made sterling yields relatively more attractive so, even without any policy action from the BoE, it is likely that sterling will appreciate further in the coming months which will add to pressure on UK exporters.
In the second quarter UK GDP expanded by a robust 0.7% q/q. The strong headline growth sparked another round of hawkish headlines. However, in view of the headwinds coming from sterling strength, fiscal tightening, slow growth in the Eurozone and a weakening pace of expansion in China, we would argue that there is still plenty of reason for the MPC to remain wary about hiking interest rates prematurely.
While the market is likely to watch wage and productivity data closely in the coming months, for the time being we maintain our view that BoE rate is likely to remain on hold until May 2016. However, since the Bank is still likely to be the second G10 central bank to be out of the rate hike stalls we expect sterling to remain firm against a host of other currencies. We expect EUR/GBP to test the 0.70 level by year end. "