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Sterling/dollar analysis and forecasts 3rd March 2009
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Market analysis
The UK economy will continue to weaken in the short term following the severe GDP contraction in the fourth quarter and there is the risk of a much sharper downturn given major pressure on the housing and banking sectors. The Bank of England is likely to maintain very low interest rates in the near term which will reinforce the lack of yield support, especially if the Bank embarks on quantitative easing.
Confidence will remain extremely weak in the short term, especially with the economic fears escalating and sentiment is unlikely to recover in the very short term. Nevertheless, the underlying US weakness should provide significant underlying protection to the UK currency.
Risk factors:
Further dollar strength would undermine the UK currency.
Persistent economic contraction would be very damaging for Sterling
Longer-term central bank reserve diversification into the UK would support the currency.
Forecasts:
| Currency | Spot (03-03) | 1-month forecast | 3-month forecast | 6-month forecast | 12-month forecast |
| GBP/US$ | 1.4050 | 1.3650 | 1.4500 | 1.5900 | 1.5300 |