2016 Pound Sterling GBP Exchange Rate Forecast vs EUR CAD

Modified: Wednesday, 23 December 2015 15:47 BST - Written by Frank Davies

STORY LINK 2016 Pound Sterling GBP Exchange Rate Forecast vs EUR CAD

GBP Exchange Rate Movement Forecast in 2016

Significant movement is forecast for the Pound Sterling (currency : GBP) during the coming year. Our leading analyst takes a look at the major drivers for Sterling against the euro (currency : EUR) and Canadian Dollar (currency : CAD) for 2016 below.

Pound Sterling Outlook Neutral-Positive

The POUND STERLING is expected to post a mixed performance next year. On the credit side, futures markets are currently pricing-in the first Bank of England (BoE) interest rate hike of a new policy tightening cycle for the very end of 2016. Our feeling is that the first increase in rates may come during Q2. The BoE will, at least partially, pre-announce this, and the Pound is expected to gradually garner support during the early months of next year as a consequence. However, the prospect of little in the way of concessions from Brussels in the EU’s ongoing negotiations with the UK regarding the terms of her EU membership could hurt the Pound. Today’s downward revision to the UK’s GDP growth figures for Q2 and Q3 2015 are forecast to anchor the UK unit during coming weeks. Taking all factors into account, the 2016 outlook for the Pound is NEUTRAL TO POSITIVE.

Neutral-Negative Forecast for Euro (EUR) Rate Trading

The EURO has enjoyed a renaissance against the Pound during the past fortnight, causing the GBP EUR exchange rate to fall back to almost 10c below its near-term high. The relief rally was driven by the European Central Bank’s decision not to significantly loosen its monetary policy at its latest meeting on the first Thursday of December. Analysts had been anticipating an increase to the €60bn per calendar month which the ECB is currently allocating to its controversial asset purchase scheme – this didn’t materialise, but the euroland’s central bank remains years behind the curve on policy compared to the US Federal Reserve and the Bank of England. This fact means that the shared currency is forecast to trade on a NEUTRAL TO NEGATIVE footing in 2016.

Global Oil Prices Forecast to Dictate Canadian Dollar Conversion Rate Movement

With global oil prices showing signs that they have topped-out during recent days, the outlook for the CANADIAN DOLLAR has significantly improved. A report issued by OPEC in the last few hours suggests that the price of a barrel of crude oil may be set to rise from the multi-year lows which it has plumbed this week, with $70 a medium term target. The Canadian economy remains heavily dependent upon the export of ‘Black Gold’, so the suggestion that US shale gas production will taper, sending wholesale oil prices higher, will be music to the ears of investors holding CAD-denominated assets. The Loonie is therefore forecast to trade on a NEUTRAL TO POSITIVE footing during 2016, sending the GBP CAD exchange rate back down through the two to one floor.

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