Forex Flash: Pound to remain whipping boy – Societe Generale

Kit Juckes, Global Head of Currency Strategist at Societe Generale feels that the news of lower unemployment and wages would make him a super dove if he were at the MPC.

He comments that the only inflation in the UK comes from imports or utilities/taxes which alongside falling disposable incomes don't point to much strength in consumer spending and the disconnect between growth and employment has been around for a while. As such, he thinks that the Pound will remain the markets whipping boy for the time being.

He continues to state that the MPC minutes clearly indicate that the BoE hopes it will be the case, indicating that real effective exchange rate of the UK may be too high for the economy to rebalance. If it is, then he feels that we are talking of an adjustment similar to JPY or CHF, where the absolute level of prices is out of synch with the rest of the world. From an absolute perspective GBPUSD should be at 1.47 based on OECD PPP, whereas it is not form a relative point of view that is one which assumes a normal environment.