Sterling falls
Sterling fell to its lowest in over five weeks against the euro yesterday after surveys showed a fall in retail sales and also evidence that the housing market is still in a very dire state.
Against the dollar, which was a little weaker after strong gains on Monday, Sterling staged a tentative recovery but remained not far off a six-week low of $1.3741 hit yesterday. A fantastic opportunity to sell dollars, as we are getting close now to the best rates for 24 years. If you need to buy dollars however, the outlook remains poor as rates continue to fall.
Further poor data expected today
Investors were wary ahead of the release of UK industrial production data for January, which is expected to show another fall as the UK economy continues to buckle under the strain of the global financial crisis - we see these figures at 09:30am
"We are in a situation where sterling is perceived as a weak currency, with economic news regularly confirming a pessimistic view on the UK as an economy that is struggling," Brown Brothers Harriman currency analyst Chris Gothard.
This view seems to be a common one, with little confidence in the pound of late. Sterling came under heavy selling pressure on Monday, falling by over 2 percent against both the dollar and the euro, its largest daily drop in a month.
Analysts have said that the outlook for Sterling remains very bleak indeed, and this is due to ongoing concerns about the overall outlook for the financial sector including banking, and the wider economy as a whole.
Investors remain jittery about how effective the unconventional monetary stimulus measures announced by the BoE last week will be in helping the UK economy to recover. As previously outlined here, its unknown territory and nobody knows how the markets will react.
"While investors wait to see how quantitative easing helps the economy, sterling should remain under pressure against the dollar and the Euro," UBS analysts said yesterday.
GBP/USD
This chart shows the movements over the last year. You can see the dramatic fall, and as outlined above, uncertainty over the measures taken to boost the UK economy mean the forecast is very uncertain. I would not be surprised for Sterling Dollar Rates to fall below the 24 year low of $1.35 in the coming weeks.
GBP/EUR
Here we can see the pound Euro rate falling down towards parity in January, before staging a come back through the early part of '09. This rally seems to be over now, as more and more negative data is released, and of course as already mentioned, the quantitative easing measuers may not be the majic wand Alastair Darling hopes it will be.
If you have a requirment to purchase a foreign currency, then beware of the uncertain volatile times the currency markets are currently experiencing. If your purchase is for a property abroad, then currency fluctuations can very quickly increase the cost of your property. GBPUSD rates have dropped 30%, and GBPEUR rates have dropped 15%.
As the weakness in the pound is set to continue, speak to us at Foremost today to discuss the various contracts and tools we have available to protect you against further loss, such as Forward Contracts, Stop Loss and Limit Orders.
Todays Data
This morning we have already seen the German Consumer Price Index and Trade Balance data - both of which came as expected and so caused little movement on GBPEUR Rates.
Later this morning we have the UK Industrial Production and Manfacturing production, both of which are following as an indicator of those sectors within the economy.
This afternoon we also have manufacturing production data from the US, and also a speech by Fed Chairman Ben Bernanke. We may well see volatility in both Sterling Euro and Sterling Dollar rates today.
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Labels: EUR, Exchange Rate Forecast, GBP, Sterling Outlook, USD
