The international monetary fund has revised its forecast for UK economic growth for 2011 down to 1.5% from 1.7% in April. Sterling exchange rates weakened yesterday against a host of currencies but most concerning is the continuing weakness against the EURO. The pound has dropped over 2% in the last couple of weeks.
You would have thought that with all the headline news focusing on Greece and Portugal that the Euro would have weakened. Instead the further possibility of an increase in interest rates for the Euro Zone has helped to strengthen the single currency against the greenback and pound as Europe will have the highest yield of all 4 major currencies (sterling, yen and Dollar)
Looking forward I feel that if we do see a rate hike for the Euro Zone in the next month or two we could see the pound fall back down to lows below 1.11. If however you are selling Euros now seems to be a fantastic time to capitalise. If we do not see a rate hike in the Euro Zone or debt problems flare up again for the PIIGS of Europe then you may risk the pound gaining and it would not be worth seeing levels go back to the start of the years rates.
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