Pound to hover against dollar in coming year

By Jonathan Cable

LONDON (Reuters) - The pound will gradually strengthen against the dollar over the coming 12 months but is unlikely to move much as a dovish central bank and weak fundamentals weigh on the currency, a Reuters poll showed on Wednesday.

The monthly poll of almost 70 analysts, taken this week, saw the pound at $1.62 in one month, slightly down from the $1.65 it was trading at earlier Wednesday but above the $1.60 predicted last month.

Median forecasts saw cable strengthening slightly to $1.64 in six months and to $1.65 in a year. This compares to $1.62 and $1.65 forecast in October's poll.

"With the Bank of England set to announce a further increase in quantitative easing Thursday ... it is hard to put forward the case for an intrinsically higher pound-dollar," said Kenneth Broux at Lloyds TSB.

The Bank of England has cut interest rates to an historic low of 0.5 percent and has been injecting billions of pounds directly into the money supply to try and kick-start the economy.

The central bank is expected to leave rates on hold on Thursday at the end of a two-day meeting and well into 2010 but is seen raising its quantitative easing program spending, with economists split between an increase to 200 billion pounds or 225 billion pounds from the current 175 billion pounds. The lack of consensus on the central bank's next move has further muddied the waters for sterling.

The range of forecasts was therefore relatively wide, from $1.39 to $1.86 in a year, marginally tighter than last month's poll but all a long way from the $2.10 the pound was at just under two years ago and the 23-year low of around $1.35 hit in January.

Sterling hit a 5-month low last month against the dollar after inflation data cemented views that interest rates were staying near zero and concerns about the UK's fiscal position prompted dealers to dump the pound.