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FX Weekly Report 16-20th December

The fog of uncertainty has been lifted and GBP has risen from the doldrums to become nearly the best performing currency in 2019. Analysts have predicted further appreciation for Sterling as part of the Brexit risk that has been a major drag on both the currency and economy has been removed. HSBC is amongst the most bullish forecasters for GBP predicting $1.45 rate in 2020.

 

$1.45 in comparison to other forecasts is optimistic but the positive theme is that even those who were previously negative on GBP have moved neutral.

Mark Dowding, a portfolio manager at BlueBay Asset Management in London stated

“Following the rally in the pound seen in the hours since the result, we are not inclined to take a strong view on sterling in either direction for the time being,”

As the withdrawal bill should pass merely as formality before Christmas, refreshingly, Brexit for a short and fleeting period will play second fiddle to economic data.
The Bank of England will meet on Thursday this week to decide on Interest rates, although there is little expectation a shift in monetary policy will occur, all eyes will be on the accompanying summary and actual votes from the BOE members.
The language will be closely scrutinised to determine whether the Bank has retreated from its dovish outlook, now preferring a neutral stance. Such a shift would likely stabilise GBP in the short term and support the view of Money Markets which has reduced the probability of an interest rate cut in August from 50% to 40%.


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