Pound Forecast Cut to $1.40 at Bank of Tokyo on Polls
Bank of Tokyo-Mitsubishi UFJ Ltd. lowered its forecast for the U.K. pound, saying losses may accelerate "toward" $1.40 after surveys showed elections this year may produce a minority government.
"With the balance of risks now shifting in favor of the formation of a minority Labour government following the election, we have become even more bearish" on the pound, Lee Hardman, a currency strategist at the firm in London, wrote in a research note today. "We have lowered our pound-dollar target further, anticipating a fall toward $1.40."
Sterling lost 1.8 percent to $1.4967 as of 4:25 p.m. in London and was above 90 pence per euro for the first time since Jan. 12 as a YouGov Plc poll yesterday put Prime Minister Gordon Brown in position to keep his job while leading a minority administration. The daily survey by the Sunday Times put Conservative support at 37 percent, down 2 percentage points, and Labour has the backing of 35 percent, up 2 percentage points. Elections must be held by June.
The pound depreciated for a fifth consecutive day against the dollar, pushing its decline this year to 7.4 percent. It lost 0.9 percent against the euro today to 90.23 pence.
Bank of Tokyo had expected the pound to weaken to $1.50, Hardman wrote. Bank of Tokyo kept its forecast that the pound will depreciate to about 95 pence against the common European currency in three to six months, Hardman wrote.
Eoin Treacy's view The
Pound has been under pressure for a number of weeks as speculation on when an
election might be called, whether the eventual winner will have a workable majority,
when quantitative easing might end and the size of the deficit have added to
uncertainty. The currency began to accelerate lower from the middle of last
week against a wide number of currencies and feel even faster this morning;
down over 3¢ against the US Dollar at one point. The Pound also hit a more
than 20-year low against the Australian Dollar this morning.
The Pound
was weak against just about every currency but recouped more than half its losses
against currencies most affected by the credit crunch (Euro,
US Dollar, Japanese
Yen, Swiss Franc, Singapore
Dollar). It remained weak against commodity related and high growth currencies
(South African Rand, Canadian
Dollar, Australian Dollar, New
Zealand Dollar, Indian Rupee, Brazilian
Real).
Recent
days have seen a marked acceleration of the Pound's downtrend which is an ending
signal. It has potential to stage a relief rally over the short term and has
greatest potential to advance against comparatively weak currencies in the first
group above. Against comparatively strong currencies in the second group it
is even more overstretched but an upward dynamic would be required to check
momentum beyond a brief pause. Given the Pound's rebound from today's lows the
likelihood of seeing such a short covering rally have increased.