Sterling outlook deteriorates slightly in June

The British pound is not expected to re-test its 2011 high against a battered US dollar as domestic economic prospects have darkened as well, the latest Reuters poll of currency strategists found.
The poll of over 60 strategists at major banks and research houses around the world was collected before the latest blow to the US dollar on Tuesday from a Chinese foreign exchange official who warned of the risks of excessive dollar holdings.
Only 23 contributors in the latest monthly Reuters foreign exchange survey said it would be at or above its year high just under $1.675 at some point in the forecast horizon, compared with 29 who said so in the May poll.
On top of that, the number of forecast downgrades handily outstripped the individual tally of those who left their views unchanged and those who upgraded their views for sterling.
That slightly weaker outlook is partly based on the fact British economic data have been broadly disappointing over the past few months, raising questions about underlying strength ahead of an expected period of drastic fiscal tightening. Latest UK gross domestic product data showed essentially no growth over the past six months - a 0.5 percent contraction in the final months of 2010 followed by a similar magnitude expansion over the first three months of the year.
Accordingly, expectations for an eventual Bank of England interest rate rise from the current record low of 0.50 percent have been pushed back to the fourth quarter of this year, despite an inflation rate more than double the target. Financial markets aren't expecting a rise until the middle of next year.
"We look for further downside in GBP as fiscal austerity and a more dovish BoE weigh," noted Chris Walker, strategist at UBS, who expects the pound to trade at $1.56 in three months compared with around $1.64 on Tuesday.
Median forecasts from the poll showed the pound trading almost exactly where it is now in one, three, six and 12 months - a notably stable view for a currency that plunged from over $2.10 to $1.32 in just over a year during the worst days of the global financial crisis.