Daily Archives: May 14, 2010
Now that the UK has a new coalition government and the currency markets have calmed somewhat, we are starting to get an idea of how the pound is valued in world markets. The authors here on pound sterling forecast had been predicting GBPEUR to hit 1.20 if we got a conservative majority, and GBPUSD to hold above the 1.50 mark. Unfortunately the coalition creates a little uncertainty, (which as we know well the markets dislike) and this has led to some sterling weakness. The question now is will this weakness continue?
In my opinion the pound may well weaken in the short term, I feel there are five main reasons for this:
1. In the short term – uncertainty over how successful the coalition governement will be
2. The huge budget deficit and national debt problems that the UK must overcome
3. Austerity measures (government cuts and increased taxes)
4. The need to keep the pound weak in order to attract investment from overseas and help UK exporters
5. A prolonged period of low interest rates in the UK
The above factors are key to the pound, as all have an effect on the potential for economic recovery in the UK. Ultimately this will be the main driver for the pound. If we see strong economic recovery then I expect the pound will increase in value, the issue is that economic recovery is likely to be sluggish and the factors above are either symtons or precautionary steps that will be taken as a result.
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