During August the pound weakened against the US dollar in terms of London closing rates from 1.6883 to 1.6579. The pound ended August close to flat versus the euro, with EUR/GBP up from 0.7927 to 0.7929. The Monetary Policy Committee held the official Bank Rate at 0.50% and maintained its asset purchase program total at GBP 375 billion. The MPC maintained an unchanged monetary stance after in February effectively abandoning its original forward guidance plan announced last year.
The data and QIR has led us to pull back to February 2015 the timing of the first rate increase. The slight pull-back in our timing of the first rate increase means we have also lowered our pound projections. We still see much greater scope for pound gains versus the euro. Our bullish dollar view leaves only modest upside scope in GBP/USD. Our Q2-2015 GBP/USD forecast is 1.6710.
BTMU