LONDON (Reuters) - The pound will coast higher versus the dollar over the coming 12 months, eking out only modest gains toward the end of the year, as market uncertainty continues to hamper its rise, a Reuters poll found on Wednesday.
The monthly poll of over 60 analysts, taken this week, saw the pound at $1.62 in one month, up from the $1.60 it was trading at earlier on Wednesday but down from the $1.65 predicted last month.
Median forecasts saw cable at $1.63 in six months and then nudging up to $1.65 in 12. This compares to a six- and 12-month forecast of $1.65 predicted in a December poll.
"We expect sterling to resume an upward path in the coming months reflecting both a lower dollar across the board and the start of an early BoE tightening in late 2010," said Roberto Mialich at UniCredit.
The Bank of England has slashed interest rates to an historic low of just 0.5 percent and is expected to hold them there until the last three months of the year.
It has also been injecting billions of pounds directly into the money supply through its quantitative easing programme to try and kick start the economy.
The central bank is seen capping its QE bond purchase programme at the 200 billion pounds it has already announced. See
Data released at the end of last month showed the British economy shrank by 0.2 percent in the third quarter, the sixth consecutive quarter of contraction, but slightly narrower than initial readings. Britain and Spain were the only major Western economies not to emerge from recession in the third quarter.
Economists predict the economy returned to growth in the last three month of 2009 and data released earlier on Wednesday showed activity in the dominant UK services sector accelerated in December.
But it has not all been good news, with data on Tuesday showing British construction activity contracted for a 22nd consecutive month in December and the country faces an election before June, with risks of a hung parliament.
"The fiscal policies of the two major parties are very different so political instability likely to weigh against sterling as the general election approaches," said Vimal Popat at Cantor Fitzgerald.
The range of forecasts remained wide, from $1.40 to $1.95 in a year, wider than in last month's poll but all a long way from the $2.10 the pound was nudging two years ago and the 23-year low of $1.35 hit last January.
EURO EASES
Against the euro, the pound was also seen making steady gains against the common currency as Britain's economic recovery gathers steam.
The currencies nearly reached parity at the end of 2008 but the pound has bounced back over the past year. Cross rates calculated by Reuters show it trading at 90 pence in three months and strengthening to 86 pence in a year.
That is a little stronger than last month's poll and compares to the 89 pence it was at earlier on Wednesday.
Sterling volatility against the dollar was seen falling over the coming month. Analysts say the divergence of forecasts in Reuters currency polls offers a leading indicator of exchange rate volatility in the following month.
