Foreign Exchange Rate Forecasts: Pound drops after confidence falls.

The pound also slipped against the dollar after earlier gaining on the view that Dubai may have avoided the worst of its debt-related problems, prompting some demand for currencies considered to be higher risk. Rates @ 08:30am are as follows:

This week will see the European Central Bank announce its latest interest rate decision, Although it is expected to remain at 1% a rate increase cannot be ruled out with the Euro zone now officially out of recession and building towards full recovery. However, the Euro could find further support if the GDP projections are more optimistic than expected, and if it signals a phasing out of stimulus measures more quickly than previously expected.

Tuesday's unemployment report will also be closely-watched for evidence on the strength of the current European Workforce. If figures are lower than expected we may see Euro Strength however if figures are higher than expected we will see the reverse and potential Euro weakness.

Last week was generally a reasonably quiet week for Sterling a drop in investors' risk appetite after Dubai's request to delay debt repayments gave the Euro a fresh impetus, with Euro zone banks thought to have less exposure to the UAE region than their UK counterparts.

Currently we are seeing a relatively stagnant market with not too much movement either side. What one can do to do combat this is to put in a STOP/LIMIT order; this allows you the client to potentially achieve a rate which is currently not available on the market place.

For e.g. if you are looking to achieve a rate of 1.12 and the market is currently not there you put a limit to try and achieve this over an allotted time frame, and to protect yourself you may place a stop at around 1.08 to safeguard your currency against any pitfalls within the market. (This example is set for those buying Euros)

This weeks GBP/USD rates showed the full volatility of the markets climbing to above the 1.67 level earlier in the week only to fall to below the 1.63 mark towards the end of the week. Initial losses to the Dollar came as a result of comments from the Federal Reserve that declines would be tolerated so long as such movements are not disorderly, along with comments also coming from the Russian Central Bank that it would diversify its currency reserves.

However, the US Dollar found much needed strength towards the end of the week on the back of its haven status after a sudden deflation in investor’s risk appetite after the breaking news regarding the debt crisis in Dubai.

US GDP during the third-quarter was revised down to a 2.8% annualized pace from 3.5% previously. However, the minutes of the US Federal Reserve's November policy meeting revealed a more optimistic outlook, which was supported by stronger than expected housing market data and labour market data.

Looking forward to this coming week, risk appetite trends are likely to remain a major influence to the US Dollar's performance and are especially likely to be influenced by any news form Dubai. Additionally this week also sees the release of the Non-farm Payrolls report which will be watched closely for evidence that the US labour market is close to reaching a turning point.