Could sterling’s rise against the Euro start to falter as it has against many other major currencies
Sterling exchange rates has had an indifferent ride over the course of this week. While we witnessed a good gain against the Euro rising from a low of 1.2530 back to 1.2720 against most of the southern hemisphere and Scandinavian currencies the pound continued to lose value. Against the Euro if you were trading now you would find that on a £200k purchase you would achieve an extra 3800 Euros now compared to the beginning of the week.
On Wednesday this week Sir Mervyn King, governor of the Bank of England, revised their predictions for GDP growth this year from 0.8% to 0% and we should have seen sterling weakness. Instead we witnessed a gain on the day against most majors as the governor also stated that he felt an interest rate cut in the UK would be counterproductive. An interest rate cut would really hinder sterling so these comments gave investors some more confidence in the pound.
The following day though we saw the gains be eradicated against some of the majors. Investors and speculators looked at the state of the UK economy and felt that the comments probably meant that we would see more QE at some point in the future. We also saw our trade balance widen yesterday. This caused them to start to sell positions of sterling hindering the rates. I feel that investor sentiment is what is moving the pound at present. We have heard how some investors have
looked at the pound and the UK as a safe haven but I can’t see that being the case at present. I feel as we head further into recession we will see the pound start to lose more value against the USD and even the Euro. While the losses
against the southern hemisphere currencies like the AUD, NZD & ZAR will continue along with the Scandinavian SEK, NOK & DKK.
You may think wow why will sterling weaken against the Euro?
Well this is because I think that as we are around the 4 year high most speculators and investors will probably think that this is the spike. If they decide to unwind their positions over the coming weeks the pound could just well fall. If you couple this with the UK’s triple AAA rating being under threat there is only so long that the UK’s poor economic fundamentals can be ignored. Look at how the pound has performed against the USD of late. We have weakened by around 5% since the high in April and I feel that it is a matter of time until the gains against the Euro get reversed.
We are at a cross roads at present against the Euro. If things worsen in the Euro zone then it will only highlight the close ties the UK has with Europe and I think investors will turn away from the pound. The flip side of this will be if Europe finally start to get their act together. We are eagerly expecting comments from the European central bank over the coming weeks as to how they will try and solve the debt crisis. If this is positive then again investors will look at the pound as
being very overvalued and the decline could begin.
At present there are so many fundamentals that can cause the pound to weaken more than it could strengthen. Looking forward to next week there is a range of data out that could affect your currency exchange all around the globe. Focusing in the UK next Tuesday we have some key inflation data out and potentially the Bank of England Inflation letter to the chancellor. All this will give us further indication of how the Bank of England may go about further rate decisions and monetary stimulus.
I believe that you are reading this site because you are looking for an insight into what may happen with the pound, while also wanting to achieve the best rate possible on your currency conversion. If you are buying or selling the pound you may wish to speak with myself about the outlook for your currency pair. The most important thing that we try to do here is limit your exposure to volatile markets by explaining all the options that are available to you. We will also make you a significant saving over the high street banks and other brokers on the rates that we offer. You may email me at firstname.lastname@example.org with your requirement and I will then contact you to discuss the options that are available to you.