The British pound sterling is one of the preferred currencies in 2014 over at currency trading house BK Asset Management.
The British pound (GBP) is forecasted to be one of the currencies to beat over the course of 2014 thanks to the relative strength of the UK's recovery. The positive view on sterling echoes that view held at Deutsche Bank who have upgraded their pound sterling forecasts.
We hear from Kathy Lien, Managing Director at BK Asset Management, as to why he firm is backing GBP in 2014:
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Don't play GBP strength via GBP/USD
UK economic growth to underpin sterling
"The U.K. government understands that reflating the housing market is the key to keeping the economy supporting and consumers feeling optimistc. After writing off significant amounts of bad debt, the banking sector is also expected to report stronger earnings and dividends in the coming year. A stronger global environment will solidify the recovery and help the U.K. economy reach the Bank of England’s 2.8% growth target for 2014, which is significantly higher than the 1.6% growth expected for 2013."
Falling unemployment to push the hand of the Bank of England
"In August, the BoE believed that the unemployment rate would fall to their 7% unemployment rate threshold by the second half of 2016 but last month they accelerated this forecast by a year to Q3 of 2015. The unemployment rate is now only 0.4 percentage points away from this threshold and it could easily be reached by the middle of 2014. While the central bank has made it clear that 7% unemployment is a threshold and not a trigger for a rate hike, the rapid decline in jobless rate has encouraged investors to position for earlier tightening by the BoE."
Key Forecasts for the British Pound (GBP) in 2014
"While the key support level for the pair is the 2012 swing low of 0.7756, we don’t expect this level to be tested unless the Bank of England raises rates in 2014 (which is very unlikely) or the ECB cuts rates to negative levels (possible but not probable).
"Buying GBP/JPY on the other hand is both a U.S. recovery and global growth trade. Short-term resistance is at 175 but the more significant resistance level is 180.
"Finally, with the BoE holding monetary policy steady as the Fed tapers, higher U.S. rates should lend support to the greenback, offsetting demand for sterling. This means we expect GBP/USD to trade in a 1.67 to 1.60 trading range in the coming year."