Again we use the Bank of England as a reference for this forecast:
Other than the announcement of the new Governor, 2012 was relatively quiet on the BOE/Sterling front.
Although there have been some shifts in Sterling in January 2013 this is due
more to revisions on Europe and Japan than any reflection on the UK itself.
There are gradual developments that will change things
radically in future but not so much in 2013.
Yes, there is still the balance of quantitive easing to be
managed and yes there is a long term debt problem that will have consequences but
nothing is currently critical in the financial markets. And the current
Governor or other executives can’t make big changes yet either.
2013
It does not appear that anything significant changes at the
beginning of the year .
There may be unexpected negative announcements by March, ( at the time of publishing this we had had a UK credit downgrade) or
perhaps a change in the physical currency but this should not have too much
impact in the medium term.
There are changes afoot in April- but we know that anyway.
In fact, it appears that most of the effects then will be relating to
management of people internally within the BOE . It is not looking like a
crisis period at all for the currency itself.
Obviously the change of Governor will create a bit of
excitement in July and a feeling of new broom. But it is unlikely we’ll see too
much going on initially. But there will be a new feel to the organisation that
will be evident even by August and September
The first slightly testing time is likely to be around
October/Nov. But the impression is that this is likely to be a need for
adjustment – so perhaps some internal matters and a bit of disagreement on the
way monetary policy ought to go at the time- maybe even with government. But
nothing that will have too much impact on the country at large as yet.
The year end looks much like its beginning, possible some
brief weakness in Sterling but nothing particularly lasting.
2014
2014 Starts as 2013 ended, with some moderate activity and a
slightly better outlook but still no big shifts.
February to March is a different kettle of fish. At this
time we have the major global configuration, fully activated and attacking the
foundations of the currency and/or the way the Bank runs its decision making on
rates and stability.
June shows a continuation of the themes with questions asked
about what exist to sustain the currency.
There could be a marked re-evaluation in July August. There is
evidence that there could be significant selling of the currency at that time.
However there still seems to be support for the leadership at the Bank.
While the potential selling abates by September, the
valuation question remains. Another opportunity for Carney to be creative.
There is more activity in November and December. While some
of the more fundamental challenges have past, there is still room for short
shocks and volatility throughout the period into 2015.
2015
There is a background theme that grows throughout 2015, of
faith in the Bank’s direction backing
the value of the currency. While it must be said that this is not fundamental
support, it will suffice for a while.
However there seems
to be a bit of a resulting anomaly, where the currency gains support but at the
slight expense of the reputation of the leadership.
Indeed all the focus in March is on the Governor and not on
the currency. Although once more if there is an election at this time, that
would make sense- there will be little direction for Sterling and much
speculation about how the bank will operate if there is a new Chancellor.
There is little of note really in April and May. Behind the
scenes there is some uncertainty but the external situation is relatively
positive and stable.
The summer is a bit more interesting. But it is difficult to
forecast the direction of the trend due to conflicting factors. On the one hand
there is leadership stability, but there are still fundamental valuation
challenges and so a bit of a stand-off between bulls and bears.
This picture continues into November. But with a noticeable
shift in the balance of power. It’s all upbeat announcements and positive trade
and then some surprising policy shifts
which have both noticeable positive short term but negative longer terms
effects.
December is quieter as a result of people being in a wait
and see mode.
Some of the challenges of 2013-15 are lessening as 2016
arrives. There is even a positive sense of monetary value again – relaxation of
restrictions but not quantitive easing)
However the result seems to be increased volatility around March
although to what extent this might be due to global issues needs to be
investigated through other currencies’ forecasts later.
May and June is
certainly a positive time for Sterling
But July is much more tricky, accompanied by more trading,
swings in value and mis-information.
Although there is change in emphasis by September, there are
still a number of problems. Most notably the beginnings of a plan to start to
tighten the money supply again.
This is likely to cause the year to end on a much trickier
note. With announcements that affect long term debt, and volatility as the
market tries to digest the longer term of impact of the proposed policy
changes.
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