GBP Fundamental Analysis 22 July 2009

By: William Doody
The British Pound was weak against major currencies as an economic research institute projected continued declines in GDP and housing prices and warned that a substantial recovery may not occur for several years. The National Institute of Economic and Social Research projected at least two additional quarters of GDP contraction and forecast declines in housing prices stretching to at least 2012. Meanwhile, press reports of additional funding needs for major banks Barclays and RBS put additional pressure on the Pound. The U.K. currency lost ground against the Dollar, Euro, and Yen.

We consider it likely that the Pound will experience on-going weakness over the coming months. Economic data suggest that Britain is the weakest of the major economies and the pace of recovery will lag that of the U.S. and EU. Retail sales and GDP data to be released Thursday and Friday, respectively, are expected to show continued problems for the U.K. economy. We see no catalyst in the immediate future for improvement in either the macroeconomic picture for the U.K. nor in the performance of the Pound. We recommend selling the Pound against both the Euro and the Dollar.