Pound Sterling Forecast

Global Shares fall most notably the banks

The FTSE fell by the highest amount in 12 years yesterday, bank shares and indeed many others tumbled worldwide as investors continued to seem worried about the current worldwide situation. In cases like this you tend to see investors head for a ‘safe haven’. Currently gold (priced in Dollars) and the Swiss Franc are favourites, and both gained further ground yesterday. Interestingly, the Pound had a fairly good day too against the Euro and many other majors, it appears although the best of a bad bunch, heads are turning towards the pound leading to spikes in the market on days such as yesterday, I’m sure it will only take a few poor data releases for investors to shy away again, so in the current market taking advantage of a spike is key.

Overview and forecast for Sterling against the majors

With a reasonably quiet day ahead on the data front I thought I would give you a brief update on what is going on in the volatile markets and what we may see ahead.

GBP/EUR – The Sterling-Euro pairing has been relatively range bound of late, however this doesn’t mean this will be the case going forward. There are just so many factors affecting both sides at the moment that it is hard to know just where we will be in a few weeks time let alone the next hours trading. It appears that the ECB are willing to throw everything inclusive of the kitchen sink into helping the Euro survive and stay strong, whilst the BOE are in no rush to be raising interest rates for quite some time, Barclays in fact changed their rate hike expectations to August 2012 yesterday. In short, I don’t expect major movements for this pairing however there will no doubt be some great buying and selling opportunities in the coming weeks. In order to ensure you are in the best possible position you should make us aware of your requirements on 01494 787 462 so we can explain the various options available to you inclusive of limit and stop orders.

GBP/USD – The Pound came close to TWO YEAR HIGHS against the Dollar this week following some hawkish dissent from one of the Federal Reserve policy makers on Wednesday. He had mentioned that he felt the U.S would have to raise rates before mid 2013 and that growth forecasts should not be as high as they are. This led to a short term spike on Wednesday afternoon and a great chance for clients with an open trading facility with us to lock in to a fantastic level of exchange. America isn’t in great shape but as the saying goes when the U.S sneezes the U.K catches a cold so be aware we could have just as many problems around the corner too.

GBP/AUD/NZD/ZAR - The pound has seen great gains against all three of these more volatile currencies, as the risk appetite for investor’s decreases and they seek to unwind carry trades. Carry trades are where an investor borrows money in a currency with a very low interest rate (GBP,JPY) and shifts the funds to a currency with a very high interest rate (AUD,NZD,ZAR) making their return on the interest differential. When we see the unwinding of carry trades, you can see a snowball effect like we did in the past two weeks and very large movements over a period of days. Sterling is around 10 cents better now against the AUD and NZD and also roughly 7% better against ZAR than a few weeks back.. That is £14,000 difference on a £200,000 purchase!!

Once again this highlights the importance of letting us know your intentions, we can watch the markets for you and highlight movements like this meaning you do not need to have your own eye on these volatile markets all the time as I’m sure you have plenty to do all day yourself. make an enquiry  today and one of our friendly and experienced brokers will call you bac, more than likely me personally.

GBP/CHF - Without a doubt the most volatile currency against the Pound on the markets at present… I have many clients who have Swiss Franc mortgages and are finding each month increasingly harder as payments soar alongside the Swiss Franc. The last week or so has been a little better for you with the Swiss national Bank stepping in to devalue the currency however be aware this may not last too long… this is why. The Swiss lost CHF21 Billion last year trying to devalue their currency, and cannot afford to keep on throwing money down the drain like this, there comes a point where they have to realize that the only thing to save the Francs increasing strength is a better risk environment and investors being more prepared to take on riskier propositions. We should still see increasingly volatile movements as the ongoing attempt to devalue continues, and the momentum of the CHF keeps pushing it back.

Public sector net borrowing today

This morning sees the release of Net Borrowing figures in the U.K and this can indeed be a key release. It essentially confirms exactly how much new debt is held by the Government and predictions can be quite a way out. This morning expectations are for £0.2Billion compared to £11Billion last month, a lower figure may be seen as positive for the pound and a higher one negative, it would not surprise me to see slightly higher than expected and the Pound to lose a little ground in early morning trading so it may be prudent to contact me on djw@currencies.co.uk  first thing if you have an upcoming transaction to carry out.

If you have any questions or queries regarding anything in this report then please do feel free to email me djw@currencies.co.uk or call 01494 787462