Pound set to fall again vs Euro & USD?

10th May 2011
Good morning. Sterling fell against the US Dollar yesterday, due to worries in the EU over debt weakening the Euro and benefiting the USD. The net result is lower GBP/USD rates but slightly higher GBP/EUR rates. As we'll see in a moment though analysts do expect the Pound to fall again this week. At 08:30am rates are as follows:
Pound falls vs US Dollars

The Pound fell to its lowest in nearly three weeks against the US Dollar yesterday, dragged down by falls in the euro against the U.S. currency as a downgrade of Greece's debt worsened euro zone debt worries. The debt worries have also weakened the Euro, and despite the fact last week rates sat at €1.1050, today rates are above €1.14 again due to this weakness.

Sterling to fall again this week?

Many analysts expect sterling to stay under pressure on concerns the Bank of England may downgrade its growth forecasts later this week and add to expectations that UK interest rates will not rise in the coming months.

With little UK data today, markets are focusing on tomorrows inflation report by the Bank of England. There may well be a downgrade in growth forecasts, and if so this would weaken Sterling and push exchange rates lower.

Recent poor UK economic data have added to expectations the BoE is unlikely to raise rates before the end of the year, and suggest the bank may give a more downbeat assessment on growth when it issues its latest forecasts on Wednesday.

What do the analysts say?

"Evidence that the BoE has adjusted its growth forecast to the downside even as its inflation forecast went up could support the view that a hike is still a long way coming in the UK," analysts at Citibank said in a note.

"This could prove less supportive for sterling and euro/sterling could correct further to the upside moving more in line with its fundamental drivers," they added.

In other words, if we get the growth forecast downgraded, the pound may start it's downward trend against the Euro again.

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