Sterling at close to an 8 month low against the USD and a fresh week low against the Euro
It had been a turbulent week for sterling exchange rates with many data releases out and growing concerns about Euro debt concerns. We have seen the pound weaken by about 4% against the USD over the last 3 weeks now trading at a close to an 8 month low and we have recently dropped from the weekends high of 1.1720 down to 1.1460 since Monday which is a decrease of 2.21%.
Worries about growth in the UK economy intensified yesterday and this morning following unemployment and retail figures for the UK. Unemployment showed a further 80K people out of work which takes the total figure to 2.51 million and retail figures out this morning showed a decline to -0.2% for the month. Both have weighed heavily on the pound and shows that the UK economy is slowing again with fears of a double dip recession looming.
Stagflation (rising inflation and no growth) is a real concern for the UK and the Bank of England is really stuck between a rock and a hard place. There have been many rumors surfacing about another bout of quantitative easing taking place and when we have seen this occur in the past sterling has plummeted quite significantly.
For Euro buyers you may well think that all the issues surrounding the Euro zone may be positive for the pound with the downgrades of banks in France recently. Unfortunately the pound is suffering as UK banks are supposedly the most exposed country apart from Italy to the Euro zone debt crisis. With this in mind a Euro zone default could be catastrophic to an already weak UK economy and I believe that we could see rates weaken by as much as 3-4% (1.10/1.11) over the coming weeks.
Against the USD mounting worries over the Euro zone’s debt problems have kept investors wary of riskier currencies, hence turning away from the pound. The USD is benefiting from a flight to safety at present as whenever there is global turmoil you tend to see the USD strengthen which is exactly what we are seeing at present. My prediction is for the pound to weaken further to levels around 1.55.
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