Caxton FX is anticipating GBP/EUR to bounce back from its
recent weakness and finish 2013 closer to the €1.30 level. Meanwhile, our
projections for GBP/USD are far more pessimistic; we expect the rate to make a sustained
move below $1.60, finishing the year near the $1.50 benchmark.
GBP/EUR
Tensions in the eurozone have eased in recent months but so
many of the region’s fundamental problems remain unresolved. Accordingly, we
expect GBP/EUR’s longer-term recovery to be resumed over the course 2013.
The UK’S stuttering economy is the key factor holding the
pound back at present. Another quarterly contraction is likely to be confirmed
on Jan 25, which will intensify market nerves with respect to a possible triple-dip
recession and a probable loss of the UK’s prized AAA credit rating. Despite
what is likely to be minimal economic growth this year, we are not expecting
the Bank of England to engage in further quantitative easing, which should be
supportive of the pound.
Growth in the eurozone is even weaker and we expect the
region to remain in recession for a while longer yet. We expect bond market
pressures to ramp up again and Spain to be forced into a bailout request, while
Greece will almost certainly return to the headlines. This year’s elections in
Italy and Germany also pose significant risks to the euro.
With UK economic data so weak, GBP/EUR faces significant
short-term risks. However, we expect GBP/EUR to regain the €1.25 level by the
middle of the year, before finishing 2013 closer to €1.30.
GBP/USD
We believe sterling is over-valued against the US dollar.
The US economy is still enjoying moderate expansion in a low-growth global
economy, to which the US Federal Reserve looks set to respond by ending its QE3
programme in the second half of the year. As the two dominant global
currencies, our projections for a weaker EUR in 2013 dictate a firmer outlook
for the greenback.
Weak global growth and the absence of a resolution to the
debt problems in the US and the eurozone should maintain plenty of safe-haven
demand for the USD this year. The Bank of Japan and the Swiss National Bank are
engaged in currency intervention to weaken the JPY and CHF, so the USD will
continue to enjoy status as the prime safe-haven currency of choice.
GBP/USD is not too far away from its recent 16-month highs
of $1.63 at present but we expect this pair to spend most of this year below
the $1.60 benchmark. A return to last year’s levels around $1.55 looks probable
with significant risks of a move as low as $1.52.
