Pound Sterling Forecast

European
Agreement takes shape

A historic agreement was finally put in place on Friday revolving
around deeper economic integration for EU countries. However, Britain (The
third largest economy In Europe) at present has refused to be involved, with
David Cameron feeling that concessions were just not there for the U.K
regarding financial regulations.

It could now take at least three months for these agreements to
fully take shape, as there are many loseable referendums along the way for the
26 countries involved.

This all leads to an interesting few weeks before Christmas,
reports in the Sunday papers yesterday suggested Nick Clegg is not happy with
the decision of Cameron, which indeed places further pressure on the coalition
– with political stability being a factor for currency strength, a break up or
even growing speculation of it may be very damaging for the Pound.

Also, over half of trade for the U.K goes through these countries,
and there is now the risk that the U.K could drift apart from the continental
mainland and relations both politically and in trade could slow down. Again,
whilst it is unquestionable that the Euro Zone has huge problems, the U.K has
many large ones of its own, and our while our Prime minister is busy at
countless meetings surrounding fixing the Euro – who is dealing with our
problems?

Usually, we put our predictions in our reports however with the
various complications that could be thrown into the hat this week in all
honesty I don’t know where GBP-EUR
will end up… David Cameron doesn’t know, Angela Merkel doesn’t know and with
something unprecedented like this I don’t believe anyone knows.

Instead, I will lay out the options available to you in order to
protect yourself should something really hit the fan in the next few days.

Option
1 – With the positive movement for
Sterling in the past week or so against the Euro, those looking to buy Euros could book out a forward contract, this is whereby you
can lock into a rate of exchange with us for up to two years with just a small
deposit. At the risk of sounding like a game show host, it could be a great
idea to lock in half of the currency you require and ‘bank’ the current rate if
current rates are above budget. For people due to receive Euros this contract
option could be the protection you have been longing for too, as we can take a
Sterling based deposit should you not have Euros in your coffers.

Option 2 – Should you not really wish to
jump in with two feet and lock in to a rate, yet wish to be protected if there
is a bug turn for the worse then a stop-loss
order may be ideal. You essentially can decide on a buying price you would not
be happy to go below, and if we see a sudden drop in rates, your currency is
automatically bought out at that level – even if it is at 4am on a Saturday…
This saves the busier of you from watching markets 24/7 yet keeps you
protected, we also offer a limit order which works the other way should there
be a rate you wish to achieve. Both of these orders can be cancelled or amended
at any time if not filled and do not cost you a penny to put in place. Contact
me by filling in the form on the right hand side of this page today to discuss
these in more detail.

Dollar to
benefit from all of this? Swiss devalue again?

Many analysts believe the big winner from all of this may now be the USD. In times
of uncertainty historically investors have ran to the perceived ‘safer haven’
of the USD, with gold being seen as a safe bet also being priced in USD, demand
for the currency increases and therefore so does its value.

If political matters in the U.K continue to take the headlines
along with riots, static interest rates and ever decreasing growth forecasts
then as an investor, although the States has problems of its own I know where I
would put my money, it would not surprise me now to see GBP-USD dip below 1.50
in the early part of 2012.

For the past few years the Swiss Franc and Japanese Yen had taken
away some demand for the USD in uncertain times, with the Swiss Franc having
increased in value by over 50% during this global crisis at its peak. Since
then, both the Swiss and Japanese have moved to devalue their currency
artificially as the strength was starting to seriously impact their exports, in
fact there are growing rumours that the Swiss may devalue again and with their
interest rate decision due on Thursday, if you have Swiss francs to sell then I
would seriously consider the options mentioned earlier in this report, a second
devaluing could push GBP-CHF well above 1.55.

The Federal Reserve (US) Interest rate decision is also due on
Tuesday evening and the U.S have thrown a spanner into the works in the past so
for those with a pending Dollar interest make sure we are aware, fill in the form on the right hand side of this page and I will be happy  to guide you throughout the process.

Data out today

 A quiet day data wise today but I’m sure the markets will have plenty to react to
with the European announcements, which will probably be the talking point of
the week (yet again). Make sure your Christmas isn’t spent watching exchange
rates and get your protection in place, or at least let us be your eyes and
ears on the market for you – contact me directly djw@currencies.co.uk if you would like assistance or have any questions or queries
surrounding this report – Thanks for reading.