The British pound (GBP) is forecast to continue to enjoying upside momentum in the longer-term with interest rate yields remaining favourable.
There can however be no doubt that the short-term picture appears to be a challenging one for the UK pound. Markets are currently selling the GBP after the Bank of England confirmed that they are in no rush to raise interest rates.
The latest exchange rate forecast note from Lloyds Bank Research suggests that the longer-term outlook remains pro-GBP owing to supportive moves in the interest rate market.
At the time of writing we see:
- The pound euro rate is 0.37 pct lower at 1.2292.
- The pound dollar rate is 0.3 pct lower at 1.6774.
- The pound Canadian dollar rate is 0.34 pct down at 1.8291.
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The current losses follow today's much anticipated risk events which took the form of the Bank of England Quarterly Inflation Report and labour market data.
The Bank of England today made it clear that it does not feel pressure to raise interest rates despite the welcome strength in the economy.
Even when it does raise rates, the Bank says it will do so gradually.
The unemployment rate fell in line with expectations to 6.8% but there was disappointment that pay growth only grew at 1.7% as opposed to the 2.0% expected.
With the British pound having enjoyed such a strong rally over recent months sharp corrections should not be seen as unexpected.
Long-term forecast: GBP exchange rates should advance
Despite the selling pressure being seen on Tuesday, analysts at Lloyds Bank are confident that further gains are to be had from the UK unit:
"The sharp rise in front end UK yields in recent days does suggest upside potential for GBP from here, and with the USD tone seemingly likely to remain slightly corrective after the jump at the end of last week, we would favour GBP/USD to edge higher.
"1.70 is unlikely to be threatened, but unless the QIR leads to a major downward revision of UK rate expectations, a break above 1.70 does seem likely this week."
The pound helps surge in number of UK expats looking to Spain for house purchases
The increased value in the UK currency has seen an increased desire amongst British people to own an overseas home, in particular along the Spanish Costas.
Demand for Spanish property has surged in 2014, according to statistics from the Overseas Guides Company, who saw a 20 per cent year-on-year hike in enquires about foreign property ownership in the first three months of the year.
“What was especially notable was Spain being more popular than France, typically the most dominant country for enquiries” said Angelos Koutsoudes, Head of The Overseas Guides Company.
“This would indicate a return of confidence in the Spanish market amongst British buyers. The pound’s ongoing strength since the start of 2014 and the UK’s booming housing market and buoyant economy will have contributed to such a bullish first quarter. The unprecedented amount of rain and flooding we suffered in January will also have spurred people on to invest in a bolt-hole somewhere sunny.
“We see no signs of this slowing down, especially with the pound at a 16-month high against the euro – £1 was worth just €1.14 for a period back in August, but after steadily climbing it’s hovering around €1.22.”
Breaking the figures down further, January recorded the highest level of enquiries during Q1, namely 5,196 compared to 3,310 in February and 3,084 in March.
Meanwhile, Spain and Ireland stood out as countries that attracted more enquiries in Q1 2014 than any quarter during 2013, although the generic enquiries with no specified country saw the largest year-on-year jump.