Sterling still falling

20 February, 2013

Tom Arnold

The Pound’s slide continued yesterday with a drop against the Euro and the Dollar of almost 1%. There seems to be a crushing certainty in the markets that the UK is going to be hit by a credit downgrade from one of the major agencies in the coming days or weeks and as such sentiment towards Sterling is dropping through the floor.

Further nails in the coffin could come from the governor of the Bank of England today when the announcement is made of the minutes from this month’s policy statement. Do we really want to see how close they came to upping Quantitative Easing, fiddling with interest rates or what their projections are for inflation over the coming months? With key policy makers even suggesting that a weak Pound is a good thing for the economy as it encourages UK exports, I certainly wouldn’t be holding out much hope of a recovery soon.

One ray of light might come from UK unemployment figures which are due out this morning as well. In recent months the unemployment figure has been coming down fairly consistently and a continuation of this could see some positivity towards the UK economy and hence the Pound.

In Europe this morning’s data has been pretty much as expected, with inflation for Germany bang on expectations and France ever so slightly below – so no real help for GBPEUR to be gained from that side of things, although it is still worth noting that while the Pound is suffering, the Eurozone is far from fixed and it won’t take much for some pressure to return to the Euro.

This evening sees the release of the Fed’s monthly minutes as well – the Dollar is another currency to be taking advantage of a weak Pound – but there are also a lot of problems still persisting in the US economy – much highlighted by their recent slump into the negative in GDP, so watch for some comment from the FED and expect volatility.