pound sterling exchange rate forecast 2012

pound sterling forecast 2012 ; The assessment comes in a currency note that paints a rather bleak picture for the near-term value of the British pound. Analysts say the pound is caught between the opposing forces of greater fiscal credibility and further Gilt purchases by the central bank.

A morning note from the company has painted a positive picture on the outlook for the pound and the UK economy next year. The key message is that the UK is ahead of the majority of other nations when it comes to tackling debt, this is expected to pay off:

2012 will see a much needed drop in the inflation rate as the higher commodity and transport costs of 2011 roll out; however the consumer just like the country is experiencing a culture change from a ‘buy now, pay tomorrow’ culture to a hybrid version of ‘save now to buy tomorrow

This enforced culture change needs to be tolerated and will help steer the UK back from the abyss of its borrowing problem and will avert us from the more concerning route of a full blown debt problem. The one thing to watch out for going into 2012 is the bond market and the Government’s borrowing costs.

The foreign exchange implications of additional QE might at first seem obvious - the net supply of GBP is increasing, logically suggesting the price should decline.

However, typical yield curve triggers such as spread differentials, curve slope and relative curves have all failed to adequately signal GBP selling.

In 2009, a marked weakening of the pound was only triggered following the second and third subsequent increase in the QE programme.

"Ultimately, significant GBP selling in the current round (of quantitative easing) will again be predicated on further richening of Gilts on swap spread. With our expectations building for this under the deteriorating economic environment in Q1, we remain bearish on GBP-USD," say analysts at the investment bank.

That said, there may be a case for cautious optimism to change the trajectory of yields later in 2012.

Bank of America say:

"We expect UK inflation to slow rapidly from the beginning of next year, meaning that real wages may finally return to positive territory for the first time in over three years.

"In addition, a comprehensive resolution of the Eurozone crisis would boost confidence at the same time as leading investors to reassess the appeal of Gilts and GBP in a less risky environment, placing pressure to the upside in EUR-GBP.

"Defensive flows and overall lower global growth will continue to support USD outperformance of the higher beta GBP. Against the EUR, we see scope for GBP near term outperformance, eventually being undermined by the size and scope of the purchase programme."

pound to euro exchange rate predictions 2012
The pound to euro exchange rate is currently 0.14% higher with GBP EUR at 1.1725. The exchange rate is forecasted to head to 1.2500 against the euro in 2012, For the latest updates on the stock market, visit Stock Market Today

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