FXStreet (Delhi) – Research Team at Goldman Sachs, believes that the Bank of England is unlikely to step out of the Fed’s shadow in the near term.
Key Quotes
“Ultimately, improvements in the UK labor market and rising domestic cost pressures will likely lead the BoE to hike following the Fed – we forecast the first hike in 2Q2016. Against this, we are mindful of the upcoming referendum on British membership of the EU and its associated risks, for example from a potential delay to BoE tightening should uncertainty weigh on the domestic outlook. We expect GBP/$ modestly lower at 1.47 in 12 months and a more sizeable drop in EUR/GBP to 0.68.”
“G10 commodity currencies continue to face a number of headwinds that are likely to lead to a continued easing bias from local central banks. In a world where commodity prices are ‘lower for longer’, a necessary part of rebalancing away from a reliance on elevated commodity prices for these economies is a weakening of the exchange rate. Policy makers will need to deliver accommodative financial conditions until they are confident that the momentum in other parts of the economy can be sustained. There is tentative evidence that the FX depreciation channel is working in Canada and Australia to stimulate non-commodity exports, but the process is far from complete and we expect further weakness in G10 commodity currencies. Our forecasts suggest they should depreciate 5%-10% vs the US$ over the coming year.”
(Market News Provided by FXstreet)