The following are Barclays Capital's views for the JPY for the year ahead.
Although we retain a relatively constructive outlook for the UK economy, and a tightening labour market continues to suggest that wage growth will accelerate, the BoE has become increasingly dovish in recent months. Indeed, the central bank substantially revised lower its inflation forecasts in its November Inflation Report and showed little urgency to tighten policy. In response, our economists have pushed back their expectations of rate hikes to Q3, from Q1 previously.
As such, we now forecast substantial GBPUSD depreciation over the next 12 months and much more moderate GBP outperformance versus the EUR. A further deterioration in the euro area economy, given that it is the UK’s largest trading partner, continues to pose downside risks to GBP vis-à-vis non European currencies.
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