Pound Seen Staying Near Current Lows vs Dollar

The pound is seen staying around current low levels against the dollar for the next year as Britain slides into recession, forcing the Bank of England to cut rates aggressively, a Reuters poll showed.

The survey of 56 analysts, taken Oct.31-Nov.4 before Barack Obama won the U.S. presidential election, showed they expect sterling at $1.59 in a month, $1.60 in three months, down slightly to $1.58 in six months, and back at $1.60 in 12 months time.

This is considerably lower than last month's forecasts, which saw cable at $1.70 in twelve months.

The last month has seen a sharp decline of about 10 percent in cable to a six-year low of under $1.53, well below the $1.75 prediction from last month's poll, and is a far cry from the heady levels of above $2.10 just a year ago.

Twenty-five of 56 forecasters see sterling below $1.60 in a year's time compared to just seven of 55 making that prediction in last month's poll, with the bulk of them downgrading their views across all the time horizons polled.

The forecasts in the current month's poll ranged from $1.38 to $1.89 in a year, considerably down from last month's forecasts which were collected before major central banks slashed interest rates in a coordinated move to boost a slowing global economy.

"We expect cable to suffer further after the UK economy has entered a recession and the BoE will be forced to cut rates aggressively in the coming months," said Roberto Mialich at UniCredit MIB, who sees the pound at $1.57 in one month.

UniCredit is in the top spot for one-month foreign exchange forecasts so far this year.

Britain's economy has been battered by a global economic slowdown that started over a year ago with mortgage problems in the United States and many economists say the country is now in the throes of recession that will last for a year or more.

The British economy shrank 0.5 percent in the third quarter, after standing still in the second, and a slew of recent data suggests it will have shrunk again in the fourth.

A recession is usually defined as two consecutive periods of negative growth.

British Finance Minister Alistair Darling said last week the country was moving into recession while the European Commission said this week that the economy would shrink by one percent in 2009.

In an attempt to resuscitate the struggling economy the Bank of England is seen cutting rates by 50 basis points on Thursday, and possibly by as much as 100 points.

"It is generally accepted that more aggressive rate cuts by the BoE could seriously diminish the attractiveness of sterling as UK/U.S. yield spreads narrow," said Kenneth Broux at Lloyds TSB.

The U.S. Federal Reserve has slashed rates over the past year to revitalize the world's biggest economy but the BoE has been held back as it has grappled with inflation running at more than double its two percent target.

The pound has fared little better against the euro -- sterling tumbled to a record low of 81.95 pence after negative fourth quarter GDP figures were released in October -- despite the 15-nation bloc itself teetering on the brink of recession.

Cross rates calculated by Reuters showed one euro worth 80.0 pence in six months time and 79.2 pence in a year.

In last month's poll the euro was forecast at 78.8 pence in six months and 78.1 pence in a year.

The volatility of sterling on a one month annualized basis against the dollar was seen falling in coming weeks to 13 percent this month from 25.3 percent in October.

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