Pound Sterling Forecast

Whilst the American economy continues to falter from a potential default to a credit downgrade and now a potential double dip recession, some speculators have suggested that Pound Sterling had emerged as a ‘safe haven’ option to investors, a rumour particularly rife following the large gains made against most majors last week.

GBP exchange rates certainly gained and majorly so, as covered in previous Poundsterlingforecast posts and perhaps some investors viewed Sterling as enough of a safe option in the current climate to add to the periphery of their currency portfolio. It isn’t a tough point to push that the UK is in more of a safe place than either the American economy or the Eurozone, however i would say that the U.K only just shades it.

Despite GBP rallying heavily against some currencies (commodity based currencies in particular), the UK economy has again been cast into doubt following what has been aptly described by David Cameron as ‘senseless criminality’.

To me this ‘senseless criminality’ suggests an undercurrent of political turmoil, something certain to put off investors from Sterling as a ‘safe’ option. We had further bad news today as Mervyn King announced a 1.4% growth forecast for the year in today’s inflation report, a  0.4% contraction from initial predictions. Be under no illusions our economy is only (and this is debatable) in a  marginally better position than our friends on either side of the pond. To go even further King admitted the serious threat that the Eurozone and US pose to our own economy, something that in itself blatantly exposes Sterling as a risky asset in itself.

The underlying fact is that the currency markets at the moment are one of the most volatile I have personally seen and the long term outlook for all three currencies looks worrying. As I see it I expect the EUR to have the most difficult year in 2012 and I can see both GBP and USD really gaining back some ground as cracks in the eurozone, the rigid system of fiscal policy and short sighted bailouts are exposed as unsustainable. In short expect the Euro to really be put under the microscope next year, and if you have your funds in Euros then it may be wise to look at capitalising on rates whilst they still remain attractive against both currencies – REMEMBER for a small deposit you can secure your rate of exchange for up to two years in advance on a Forward Contract (for a full description of how this works please do not hesitate to email me on jfm@currencies.co.uk).

In terms of the American economy there is a lot of talk of a double dip recession, if I am putting my neck on the line I would suggest that they will avoid it. Yes they saw a hugely dramatic GDP revision. Yes the American economy has a spending problem and yes they are struggling by any means to stimulate growth but still I would fancy that the Americans can grow their way out of a recession. Certainly I would not be surprised to see American GDP to contract at some stage or other, this year or next and I’m sure this will present rife opportunities to purchase Dollars but I fancy the Americans to stumble their way through and avoid economic meltdown.

Finally the UK economy is (as mentioned) in arguably the better position of the three and I would argue that by taking an aggressive line with austerity measures early the Coalition Government made a great move and one that has perhaps meant that we will avoid being the next Greece, Ireland or Portugal. However like the Americans we are also struggling to grow and are likely to keep interest rates at record lows for the forseeable future (and I am talking 2013 here).

To sum it up it really is a battle of which currency is the worst performing at present as opposed to the best and with each facing such significant economic threats (which in turn put each other even further at risk!) the swings in the markets are likely to continue to be extremely volatile. If you have an upcoming transfer involving any of the aforementioned currencies then feel free to contact the author directly on 0044 1494 787 451. Although no-one can predict exactly where the Forex markets may go, all you can do is gather the most possible information in order to make the most informed decision you can. There are also several different contract types available to ensure you make the most on your transfer, which I would be more than happy to talk you through.