Sterling GBP to USD, AUD, EUR Forecast

Sterling Outlook
The pound dropped against most currencies including the Euro and US Dollar yesterday, there was also a decline in equities and other currencies like Sterling that are percieved to be higher risk. Another reason for the pounds continuing decline is last weeks unexpected Bank of England decision to expand its quantitative easing programme by an extra £50bn. Also, as mentioned in yesterdays report, on Wednesday this week we have the quarterly inflation report by the Bank of England tomorrow, and this is likely to be fairly negative.

In addition to the BoE's forecasts for growth & inflation tomorrow, the markets are very cautious ahead of todays data. We have UK industrial production data today, and also tomorrow some unemployment figures. Both of these are expected to be weak, and so in anticipation of a weakening of the pound, investors have moved funds to USD and EUR.

"People have taken the Band of England's decision to expand its quantitative easing programme as a sterling negative," said a currency strategist at Bank of Scotland. In these uncertain times there is not alot of appetite for risk, and so investors move funds to percieved saer currencies in anticipation of poor figures.

This often happens, so if there is poor data expected for the UK for example, often as investors move funds around in advance, the net result is the poor results being priced into exchange rates some time ahead of the actual data being released. This is another reason to make sure you have a trading facility open and ready to use, and that you keep your account manager at FCG informed of your requirments and timescales, so you can have all the information you require to make an informed decision when to convert your funds.

Will the pound recover?
The uncertainty really is the UK economic situation – no-one really knows if this quantitative easing will ultimately help or hinder the UK. We’ll find out in the coming months – if it does have the desired effect rates will go up, and vice versa. What’s worrying most analysts is the UK’s deficit and level of debt which all this spending has caused – so much higher than other major economic zones, and no real idea on how it will be repaid other than very optimistic growth forecasts for the UK. I suspect tax levels will soar to repay it which will also weigh heavy on the pound.

GBPEUR
At the time of writing, this currency pair is at 1.1130. At 09:30 today we have House Price Data, Trade Balance, Industrial Production, and Manufacturing Production. If the data is any weaker than expected the you may well see this rate drop down towards 1.10, although it's unlikley to go below this in my opinion.

GBPUSD
we have a budget statement this afternoon, but the main news from the states is the Trade Balance data at 13:30. The Trade Balance is between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the USD. If a steady demand in exchange for US exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the Dollar. Again, if this happens then expect rates to drop. Currently we are still at a very healthy level of $1.52. If you need to purchase dollars soon, then consider fixing your rate sooner rather than later to protect you against any drop in levels.

GBPAUD
I expect the bank of England to continue pumping money into the economy, which will likely weaken the pound which would continue to cause the rate to fall.

However, on the other hand the RBA has room to continue to cut interest rates in Australia as the year goes on, which will weaken the currency and make it cheaper to purchase. So, really we have a tug of war between the two currencies as they both weaken – whichever country has the worse economic performance will likely lose this tug of war. It really depends on how much time you have to play with for your transfer. Eventually the rate will recover, but this may not happen until much later in the year or even 2010.

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