Pound frozen out

21 January, 2013

Robin Haynes

Sterling has continued its drop in line with UK termperatures for the last few days – retail sales figures on Friday were very disappointing (showing a 0.3% contraction in the year to December, compared to expectations of a 1.1% increase), giving analysts nothing to cheer at all in the UK economy. Sterling fell further against most currencies, and has now fallen around 2c against both the Euro and US Dollar in the last week, around 1c against each on Friday.

The retail sales figures were the worst for the UK since 1998, except for 2010 when sales were hit by heavy snow.

Is the Pound now in free fall? It seems so at the moment, and this week will bring some tests for the next direction of exchange rates. We have the initial measure of UK GDP for the last 3 months of 2012, due on Friday morning, and given last week’s retail sales figures and recent data, we are not expecting great news. The consensus is for 0.9% growth in Q4, which would leave the British economy flat for 2012 – if the figures are worse, it could be very bad news for sterling.

Also this week we have the World Economic Forum at Davos, running from Wednesday to Friday. While the media will inevitably focus on the skiing and parties being had at taxpayers’ expense, the forum has a serious function, as world leaders will discuss the economic problems around the world. We don’t hold out too much hope for any dramatic announcements, but perhaps the recent Fiscal Cliff and Eurozone debt problems will be better understood around the world by the end of the week.

Finally there is not much important data due out today, just German producer inflation and Swiss industrial production this morning, which may affect Euro and Swiss Franc rates for those of you who need to send money to Switzerland or Europe.