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Pound Sterling Forecast to Break Back Above the Two to One Threshold GBP CAD

October 8, 2015 - Written by John Cameron

UK GDP Undermines Demand for Pound Sterling (GBP) Exchange Rate

The National Institute of Economic and Social Research (NIESR), a widely-respected British think tank, published its monthly Gross Domestic Product Estimate for the UK economy yesterday afternoon and it made relatively grim reading for investors holding the Pound Sterling (currency : GBP).

Predictions for 0.5% Growth Limit GBP Conversion Rate Gains

The NIESR uses the same economic forecasting software as the UK Treasury, so its projections for the future performance of the domestic economy are rarely far from the mark. The NIESR’s estimate that Britain’s economy expanded by a tame 0.5% during the three months to the end of September therefore made analyst sit up and take note. The numbers forecast that domestic economic activity also increased by 0.5% in the three months leading up to the end of August.

The latest official figures from the Office of National Statistics (ONS), which covered the second quarter of this year, printed at a healthier 0.7%. If the latest ONS official numbers, due for publication in the next few weeks, confirm the drop-off in economic activity during Q3, then analysts forecast that the Pound Sterling will record significant losses against the other major global currencies. Such an outcome would appear highly likely, given the Purchasing Managers Index survey of Britain’s services sector, published earlier this week, which showed at its lowest level for over two years.

Foreign Exchange Forecast: GBP to AUD, CAD, NZD Currency Pairs Decline Today

Elsewhere, the near-term improvement for the high-yielding Commodity Dollars, which has seen the Pound Sterling suffer significant losses against the Australian Dollar (currency : AUD), New Zealand Dollar (currency : NZD) and Canadian Dollar (currency : CAD) could be reversed in the short to medium term given another downbeat commentary from the International Monetary Fund yesterday. Jose Vinals – a senior IMF official – commented yesterday that ‘global financial stability is not yet assured’ and alluded to the specific dangers posed by the collective Emerging Markets economies. FX insiders forecast a break back above the two to one threshold for the GBP CAD exchange rate in the near-term.
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