Just how will the pound weather this current storm?

GBPEUR Rejected by 1.17 Price Level Again

It has been quite difficult to escape all the problems for the pound over the last few weeks. I highlighted a few weeks ago here how I thought the pound was due some further losses but the key question is will it continue?

Trying to predict currency movements is a bit like predicting the temperature on a given day. You can give a loose range of where the temperature may be but it is unlikely you will guess the exact level. And just like you can make informed guesses on temperatures depending on the season, you can make informed guesses on currency according to the trend. Regarding sterling we are currently in the midst of Winter metaphorically speaking. And just like some of the UK was hit by unexpected snow flurries today, so too could the pound be hit by unexpected further bad news. The chance of any sunny spells (improvements for the pound) look limited and anyone hoping for rays of sunshine would be well advised to snap up any sunny opportunities they see!

Looking further ahead into my crystal ball we are bound to see the pound find favour but the problem is the number of hurdles before we get there. Mervyn King famously said last year he wasn’t sure if we were half way through the current economic crisis and sterling’s recent troubles are testament to that analysis. King will soon be assigned to history but his economic diet of QE and low interest rates looks set to be on the table for the foreseeable future. As does the coalition’s current economic path. Osborne has painted himself into a corner with austerity and any shred of credibility will be lost if he makes major changes. I expect the budget to contain little to get excited about although this is a date for the future for anyone looking for a change in current levels.

I don’t want to talk down the situation too much as the UK does have positives. Versus the euro zone we have an economy spluttering but not in a spiral. Versus the US we have some international confidence for at least trying to solve our budget deficit. The UK has taken steps (albeit unpopular ones) to rein in public spending and on paper at least this should put the UK in some good stead for the future. The flipside (and it is a big one) is that ultimately the measures taken have not had the intended consequence and markets are punishing the UK.

The thing with any market is that you should always expect the unexpected. To sum up the prospects for the UK I expect sterling to suffer a bit more but make a recovery in the none too distant depending on of course various unkown future events. Getting the best exchange rates can be achieved through understanding of what is driving exchange rates and making sure the source you purchase from are actually offering the best rates. Most banks give terrible rates and even if they do improve slightly it is highly likely we can undercut. Quite simply if we were not better we would not be in business.

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