27 December, AtoZForex.com, London – Deutsche Bank argues in its latest analysis: GBP most overvalued currency in the world, as UK government picks-up the pace of spending cuts and Brexit vote looms closer. Hence, Deutsche Bank warns that it is expected that the Pound will devalue further, building further on the bank’s last week GBPUSD forecast to break 1.35.
GBP most overvalued currency
The Pound is expected to suffer in 2016 as the Government ramps up spending cuts and uncertainty about Britain’s future in the Eurozone weighs on growth. Deutsche Bank warned that the Bank of England (BoE) might not be able to increase interest rates “at all” if UK’s recovery slows down.
Meanwhile, the deteriorating outlook will guide GBP lower as the currency remains strongly overvalued, despite the depreciation from 1.70 level.
“We have various different ways of looking at currency valuations and what we find is that sterling is the most expensive currency out there at the moment – even including the dollar,” Deutsche Bank noted in its analysis on GBP most overvalued currency .
Earlier this year, the International Monetary Fund (IMF) stated that the GBP was between 5% and 15% overvalued.
Consider reading: Fundamental calendar into 2016
No BoE hike?
Several central bank policymakers, including Governor Mark Carney and Martin Weale, have downplayed the prospect of an interest rate increase in the next few months as a renewed decline in crude oil prices and weak wage growth keep economic inflation well below the BoE’s 2% target.
Since November “oil prices have fallen more and the inflation data are showing signs of slowing. So if we don’t have a hiking cycle in the first half of next year, there is a risk that we don’t have a hiking cycle at all,” Deutsche Bank argued.
Currently, markets expect the central bank to hike rates in January 2017. Deutsche Bank added that even if the BoE started its hiking cycle in 2016, the pace would be much shallower than in the US, pushing GBP to at least 1.40 against the USD by the end-2016.
Think we missed something? Let us know in the comments section below.