Sterling fell again yesterday after the governor of the Bank of England Governor Mervyn King said the recovery will be slow, and there will probably be a need for more Quantitative Easing. Rates @ 08:30am this morning are as follows:
Bank of England comments
- GBP/EUR 1.1408
- GBP/USD 1.5454
- GBP/AUD 1.7366
- GBP/NZD 2.2357
- GBP/CAD 1.6297
- GBP/CHF 1.6702
- GBP/HKD 11.999
- GBP/JPY 139.43
- GBP/ZAR 11.973
- EUR/USD 1.3543
As they have now given a very negative assessment of the UK recovery, and added that more stimulus may be required in the form of Quantitative Easing, analysts are now pessimistic about the recovery in the UK.
As investors now have less confidence in the UK, they have sold Sterling assets for safer currencies such as the US Dollar. This has weakened the pound, illustrated by the fact Sterling to US Dollar rates have dropped 10 cents since last month. That's a huge fall.
If GBP/USD rates have dropped, why haven't GBP/EUR?
It's to do with the Euro being very weak in the aftermath of the Greek debt and downgrading situation. This has weakened the Euro, and so the softer Euro means rates have not fallen as much as Sterling has against other major currencies.
It's like a tug-of-war between the EU and UK economy, struggling to see who can perform the worst. It's hard to predict how this tug will end, but I believe the UK is in a worse position than the EU as a whole, and this doesn't bode well for Sterling exchange rates.
Focus will now move towards the second estimate of UK gross domestic product due out on Friday, set to show only a small upward revision to 0.2 percent quarterly growth from a previous reading of 0.1 percent for the last three months of 2009. It's a very small forecasted increase though, so if the figures show a smaller growth, or even a decline, then expect the pound to come under further pressure and rates to drop.
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