My GBPUSD forecast

For the Gbp especially, it is hard to see much further upside from where we are at now (GBPUSD spot 1.5887) when policy makers appear to lean towards a weaker sterling. (King saying that a weak Gbp is beneficial - Thur 24 Sep 09)

To be sure, the UK economy is running huge public debts - to the tune of a level which rating agencies like Moody's usually flashes red lights for a possible downgrade.

But at the moment, the UK will keep their AAA status.

Right now though, PM Brown has said he will not unwind quickly the levels of debts until he sees the recovery becoming firmer and more sustainable.

My thinking is.. with the poor fiscal outlook and debt levels as the UK's, it will probably take some years to deleverage and finally achieve a more prudent balance sheet.

Even if the economy does pick up, the currency is likely to underperform the Eur and the dollar. For the latter, the reason being the US is expected to push itself out of recession faster than the UK. For the former, well, at least no central banker wants to talk down the currency in such a direct way.

The pound used to be one of the highest yielding currencies in the developed world and has been a big favourite for the carry trade.

But we might be seeing a permanent change occuring right now. The Gbp may not return to as strong as it was before, given it needs time to sort out its public debt and groom other parts of the economy to replace the sputtering financial industry and contribute to taxes.

So I'm out on a limb here, saying that in the medium term, we might see parity in the EURGBP (spot now is 0.9216).

My forecast for GBPUSD anyway, is 1.5600 (Dec '08 congestion high) to 1.6230 ( near neckline of double top reversal).