Sterling demise continues

21 February, 2013

Matthew Boyle

Yesterday saw in part some good news for the UK as ONS unemployment figures released showed unemployment figures fell by 14k in the last quarter of 2012 down to 2.5 million. Furthermore it showed that the number of people in work rose by 154k to 29.7 million, whilst also numbers of those claiming job seekers allowance fell – showing that the job market in the UK is growing. However this fairly positive news was overshadowed as the Bank of England (BoE) minutes showed potential further rounds of Quantitative Easing (QE). Soon to be replaced governor Sir Mervyn King heavily backed further QE but was outvoted 6-3 by committee members to increase the current levels of 375 billion.

Albeit no further QE is a positive thing in terms of Sterling strength the markets and investor sentiment saw this as a clear indication that no doubt QE will be on the cards later in the year and perhaps combined with ongoing triple dip recession fears caused the pound to go almost into freefall for a short period against many of its paired currencies but most noticeably the Euro and US Dollar.

Within 15 minutes yesterday the pound had weakened by almost a cent against the Euro, which now takes its losses against the single currency to almost 7% since the New Year alone. And against the US dollar the pound slipped almost 2% yesterday alone, and taking the pairing to a 2.5 year low following the news from the BoE meeting but also following the Federal Reserve meeting in the US which stated that they will vary the pace of the ongoing bond buying scheme. This added an injection of USD confidence in the markets for the greenback which is not only continuing to stave off the “fiscal cliff” but many analysts feel now is gaining momentum and beginning to show signs of economic recovery. As such the USD also made a couple of cents gain against the Euro and is perhaps well on its way back to regaining its “safe haven” currency status , particular given current GBP and Euro weakness.

It is certainly a very different situation in the markets than it was 6 months ago – Euro zone crisis in full swing, the US on the verge of a financial crisis and with the UK reaping the rewards and strong against both these majors. At present with USD strength quickly returning, ongoing Euro momentum and a looming UK triple dip recession, it is questionable as to where or how the pound can begin to regain its lost ground. With European GDP out later and perhaps the most notable of the days releases could the pound make a small recovery as analysts are predicting a slight contraction? But with the markets moving heavily upon rumour recently, with this potential drop likely to be priced in, and with the Euro’s clear momentum even despite a negative outcome it would not be totally surprising if we saw a continued trend of the pound weakening.

If you have any upcoming transfers to make please ensure you speak to your Currency Index broker to ensure that in these particular turbulent times, you stay well informed and well ahead of the markets.