The pound has been on an incredible run of form in the last few weeks as fears over the single currency cause investors to change their positions according to changing economic sentiments. Sterling against the Kiwi, Rand, Loonie and Aussie has been at its best all year in the last couple of weeks. And against the Euro and Dollar too, the pound has made excellent gains which many have capitalised on. The question we can now ask is what next, will this run continue? We have covered in posts over the last few weeks how the pound has found favour because of the UK’s approach to its debts and budget deficit. Compared to the mire developing in the Eurozone, and the US’s reluctant attitude to confront its debt problems, the pound has found favour as traders feel the UK is setting itself up to be in a better position down the road. Is this really the case though?
There are a number of reasons why anyone hoping the pound will continue to make gains on EUR, USD, AUD, CAD, NZD, ZAR and all the rest should beware. Let me explain some of them here:
We are in recession! Stating the obvious perhaps? But when this was announced last month the pound barely moved against most currencies. Recession means the economy is shrinking. That makes dealing with the massive debt pile even more burdensome. With Mervyn King himself predicting no return to growth until the later part of the year the economy and the UK’s ability to tackle its debt has therefore stalled. Will those investors who currently favour the UK’s approach be so supportive if the very measures designed to keep the UK ‘safe’ are in fact doing more harm than good? I would not be surpised to see a real run of bad data in the coming months particularly with the Eurozone crisis going from bad to worse.
UK plc needs a strong Europe You do not need to read too far in the press to find negative comments about Europe. This has and probably always will be the case. The reality nowadays is the UK needs a strong Europe to keep our economy strong and foster growth. One estimate puts at 40% the amount of trade the UK receives from Europe. Many of the private businesses Mr Cameron and co regularly put pressure on to drive through the recovery, rely heavily on orders from Europe. The UK is also deeply exposed to the European debt crisis through our banking sector. If the banks runs in Europe continue to weigh on the European banking sector and the Governments and banks cannot pay back their debts to the UK, we could see UK banks needing recapitalisation. The UK is still limping, licking its wounds from the last financial crisis. The last thing it needs is another kicking now! If considering any transactions involving the pound the next few weeks could really push things one way or the other. To find out more specific to your requirements please feel free to contact me personally on [email protected] or call +44 1494 787 478.
More QE may be inevitable More Quantitative Easing may be the only option to kickstart the UK’s economy later this year after we are all partied out from the Olympic and Queen’s Jubilee celebrations.
Markets move on sentiment and rumour The currency markets are often only reflections of sentiments. Currently the UK is favoured but this can quickly change. This Thursday, May 24th we have the first revision of UK GDP data for Q1. This data could well expose the reality that the situation in the UK may well get much worse before it gets better. Despite the huge undertakings by the current government the UK’s debt position is still torrid. The fear that may easily creep into investors minds in the coming weeks may be the reality the coalition has cut too much, too fast and has choked off the recovery. Remember it only needs to be these sentiments that develop for the situation to turn. If you are considering an exchange and are happy with current levels or would trade at a slightly better rate why not make us aware? Our highly personal service is designed to ensure you get the most from the markets and we can be your eyes and ears in the market.
I feel personally that with so many clear challenges ahead for the UK, the current positive sentiments for the pound may soon falter. One thing you should always prepare for on exchange rates is the unexpected and if considering any currency exchanges at the moment, to beware of all the events that could move your rate. The current Eurozone crisis may only get more problematic in the coming weeks and the negative effect this could have on the UK and the pound should not be forgotten.
Here at pound sterling forecast we are currency specialists working for the UK’s top currency brokerage. Through this website we can not only offer our expert analysis and opinion, but can also personally assist prospective clients with our award winning service and rates. I have never had any trouble making sure anyone who contacts me via this site gets the very best rates. Even if you have another source you are using, it is always worth a second opinion to double check what you are doing and that you really are getting the best deal. We offer a highly personal service to clients all over the world so to find out more about all of your options please feel free to email me directly on [email protected] or call +44 1494 787 478.
I look forward to hearing from you.