Time to short GBP say UniCredit Bank who also see an overstretched US Dollar

Modified: Friday, 20 September 2013 10:36 BST
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UniCredit Bank have today confirmed a bearish stance towards the UK currency in their latest currency update:

"Weak UK retail sales erased some of sterling’s gains, suggesting that the GBP could hardly benefit going forward from positive surprises from the real economy. Current cable and EUR-GBP values are attractive to return short GBP."

Analysts are also predicting a relief rally for the US Dollar:

"EUR-USD is still steadying above 1.35, but the USD is now overstretched after the Fed took no tapering action. Position-paring may emerge ahead of the German elections on Sunday, but probably not enough to trigger a retest of 1.3450. "

"Consolidation on the back of a still sluggish USD is likely to remain in place today, after aggressive USD buying did not emerge yesterday even after strong US economic data. Given the light data agenda, dull trading could prevail into the weekend."
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Long term: US Dollar weakness predicted to persist

While there may be some relief buying for the US currency in the short term, the longer term timeframe has turned decidedly USD bearish. This will tend to underpin the pound sterling to US dollar exchange rate in the longer term.

Shaun Osborne at TD Securities says:

"The Fed’s decisions this week suggest that its balance sheet will continue to grow – significantly – for some time to come. That is implicitly USD-negative. Except that the USD has hardly reflected relative balance sheet
considerations for some time.

"That is especially the case versus the EUR where the ECB’s balance sheet has slimmed down significantly this year. If balance sheets had been a significant and more consistent driver of the exchange rate (as in 2010/2012), EUR/USD might be trading closer to USD1.45/1.50 now.