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Forex pairs in this Article » GBP/USD
FXStreet (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ believes the GBP/USD could hit 1.70 backed by the solid UK recovery.

Key Quotes

"The pound remains stronger following the release yesterday of the BoE’s latest Quarterly Inflation Report. The Inflation Report was viewed as more hawkish than expected with the BoE significantly raising its outlook for economic growth in the years ahead."

"The BoE now projects even more robust real GDP growth of 3.4% in 2014 lifting their outlook even further above current consensus expectations of around 2.6%. Despite the stronger growth outlook, the BoE also modestly lowered their outlook for inflation which it expects to still be just below target in two years time."

"However, the BoE remains overly cautious over the outlook for the unemployment rate which it projects will decline only modestly to 6.6% by the end of 2014. We believe that the unemployment rate will fall more sharply to within the BoE’s new equilibrium range of between 6.0-6.5% during the second half of 2014."

"Given that the BoE also signalled yesterday that they will begin to raise rates before all the economic slack is used up which is currently estimated at between 1.0 and 1.5% of GDP, it suggests to us that the BoE will come under increasing pressure to raise its key policy rate later this year. We still expect that the first rate hike will be delivered in Q1 2015 but acknowledge that there is now a higher risk of it being delivered in Q4 2014."

"However, the BoE also acknowledged that the pace of tightening in the years ahead will be gradual. The BoE’s updated forward guidance has been refocused from the more specific unemployment rate to the broader measure of spare capacity within the economy."

"The guidance is far less clear now as it relies on a more subjective judgement. Overall, the developments support our view that GBP/USD will rise towards the 1.70-level and EUR/GBP fall towards the 0.76-level in the year ahead."
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