EUR/GBP Fundamental Analysis October 20, 2014 Forecast

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Updated: Aug 25, 2015, 01:00 UTC

Analysis and Recommendations: The EUR/GBP is basically flat today moving between small gains and losses to trade at 0.7959. Sterling is fundamentally a

EUR/GBP Fundamental Analysis October 20, 2014 Forecast

Analysis and Recommendations:

The EUR/GBP is basically flat today moving between small gains and losses to trade at 0.7959. Sterling is fundamentally a weak currency; the UK cannot persist with its currency account deficit and expect the currency to remain strong in the long term. If the deficit remains as it is, we will have to attract in the realm of £100bn in foreign direct investment. Without this, sterling could drop as much as 15%. This week’s surprise drop in UK inflation to 1.2% has reduced the likelihood of an interest rate hike before the general election in May 2015.

When rates do rise, the pound could appreciate as investors see sterling assets as a better option. In that context, some suggest sterling has fallen far enough already. The UK economy is doing well, the unemployment rate is falling, five-year inflation expectations remain above 3%, and even the low CPI reading could be seen positively for consumer spending given weak average weekly earnings.

European Central Bank policy makers said governments must accelerate plans to strengthen their economies or risk derailing the region’s recovery. The ECB has also cut interest rates to record lows and offered long-term loans to funnel credit to companies and households. Coeure reiterated a pledge to do more if needed.

The central bank today published the legal act allowing covered-bond purchases to start. ECB President Mario Draghi has said he wants to steer the size of the balance sheet back to early-2012 levels, signaling an addition of as much as 1 trillion euros ($1.3 trillion) in assets.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports.

Today’s economic releases actual vs. forecast:

There are no data releases scheduled Friday in Asian or European markets, focus will be on Janet Yellen’s speech later today

Cur.	Event	Actual	Forecast	Previous
USD	Building Permits (Sep)		1.029M	1.003M
USD	Building Permits (MoM)		2.8%	-5.1%
USD	Fed Chair Yellen Speaks
USD	Housing Starts (MoM)		4.8%	-14.4%
USD	Housing Starts (Sep)		1.004M	0.956