Pound Sterling Forecast

Yesterday sterling exchange rates fell slightly as a result of UK inflation figures falling more than expected for the month of June. The Consumer Price Index (a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services) fell from 2.8% to 2.4% suggesting the Bank has scope to keep interest rates at record lows of 0.5% or potentially lower for the foreseeable future. Following the announcement the pound took losses against most major currencies – however with rates still very strong against the single currency is it time to take advantage?

The fact the pound is trading at close to a four year high against the Euro to me suggests yes. I (along with a number of my colleagues) am a little surprised the pound has reached these levels and I personally feel exchange rates will re-trace back towards the 1.25 mark in the coming days. My reasons for this simply stem from the fact that the UK is still underperforming and the Bank of England have little left in their locker other than further Quantitative Easing (this hasn’t been having the desired affect recently) so will they look at cutting interest rates to 0.25%? I think there is a real chance of this and today’s Bank of England minutes at 09:30 will give indication as to what the Bank has in store over the next couple of months.

Any Euro buyers may wish to get in touch with their account manager prior to the 09:30 release as should the tone of the minutes be dovish (i.e. in favour of rate cuts) or the BofE does not rule out further QE then I would expect some potentially heavy Sterling losses this morning. 

 What next for cable?

Sterling exchange rates gained in the morning session against the dollar yesterday pushing close to the 1.57 level, however by the afternoon rates had pushed back to the 1.55 territory following a speech by Ben Bernanke the Federal Reserve Chairman.

In his speech Bernanke said the FED stands ready to offer additional monetary support to a U.S. economy that has slowed significantly in recent months, but kept his cards very close to his chest as to when he may take action. Many analysts were looking for more of a clue for short term stimulus, however Bernanke and the ‘FED’ appear to be adopting a ‘wait and see’ approach, something that I feel will keep support in favour of the US dollar. Because of this and the potential downside risk to sterling with today’s Bank of England minutes, I would expect to see cable rates down towards the 1.54 territory by the end of the week.

Best exchange rates for the AUD

Australian dollar exchange rates have remained stable against most currencies following the release of the Reserve Bank of Australia minutes. The minutes gave reasons as to why the Central Bank held interest rates at 3.5%. The report showed Australia grew at the fastest annual pace in the developed world in the first quarter of 2012, however government reports since RBA Governor Glenn Stevens’ latest policy decision have painted a mixed picture of the economy. Retail sales rose by more than twice the pace economists forecast and consumer confidence strengthened, but in contrast the unemployment rate increased and home-loan approvals fell. The minutes indicated they expected demand from China to remain strong (although some concerns were highlighted based on China’s falling GDP).

However China is still posting strong figures compared to the rest of the developed world and this is likely to keep the Aussie strong against most majors. One aspect to highlight however is that the majority of analysts are pricing in a rate cut at the RBA’s meeting in August and I personally feel this will curb any strong gains from the Aussie and we are likely to remain range bound between 1.51-1.53 in the short term.

To discuss my views on current market conditions or to run through the service we provide then please contact Mike on mgv@currencies.co.uk or call on 01494 787478 and I will happily run through the options we can provide as one of the UK’s largest independent currency brokers.