The British Pound to Dollar (GBP/USD) is forecast at 1.4500 for June 2021 and 1.50 for December.
Foreign exchange analysts at NAB expect that a strong UK recovery on the back of its vaccination programme will provide a net Pound Sterling boost over the next few months, although it also notes that this is conditional on the UK avoiding a renewed increase in spikes.
NAB details the UK vaccine programme and notes that the UK is now at a critical phase.
Overall it adopts an optimistic stance on the programme, especially as the UK will have a stockpile of 400mn doses from six sources by the middle of 2021.
After a row with the EU during March which threatened to undermine the overall programme, the UK has been successful in keeping the wider programme on track.
The vaccine programme has been crucial in allowing the UK to embark on a re-opening programme although this process itself also opens the UK to increased risk factors.
“With the UK’s new case rate having dropped from 900 per million at the start of the year to less than 50, the UK now faces its biggest risk and one its peer group have yet to face.”
NAB notes the possibility that there will be the risk of complacency within the population which could lead to difficulties if new variants take hold.
“The risk is many citizens only see either lockdown or reopening and therefore have already ceased social distancing rules.”
Given the extent of optimism over the outlook, any setbacks within the next few months would risk a severe dip in Pound Sterling confidence.
Although there is inevitably an element of risks, NAB maintains an overall optimistic assessment of the outlook. The bank notes; “Retail reports since the weekend reopening have been strong, with the build-up of household savings anticipated to provide some endurance.”
The bank notes that the World Bank forecasts UK GDP growth of 5% this year and 5-6% next year. It also notes that the UK inflation rate could hit the 2% target, potentially as early as mid-year, lessening any pressure for the Bank of England to maintain a very aggressive monetary policy.
The bank expects GBP/USD will post further gains, especially with the US currency to remain on the defensive.
As far as the dollar is concerned it notes; “We continue to see USD headwinds from past yield changes and US twin deficits.”
The Euro to Pound (EUR/GBP) exchange rate is forecast to trade in a 0.85-0.87 range.
“Our mid-year target remains an ambitious 1.45. Having failed to make inroads below 0.85, EUR/GBP holds 0.85-0.87 for now.”
GBP/USD is forecast to peak at 1.54 in mid-2022 before fading.