Sterling struggles continue

24 October, 2012

Tom Arnold

Sterling has continued to struggle in the last few days, with overriding sentiment seemingly in the Euro’s favour as the markets take heart from recent meetings and announcements, from the various Eurozone leaders and policy makers. This has meant the Euro has managed to push down rates across the board, most notably against the Pound, where we are currently at levels not seen since April.

Somewhat surprisingly, given the Euro’s strength, the Dollar has also managed to make some gains against Sterling in recent days. This seems to be more about risk appetite than any actual true Dollar strength. Ahead of UK GDP on Thursday investors are simply shifting positions around and moving out of Sterling to avoid the in or out of recession gamble. The Dollar is likely to be incredibly volatile in the coming weeks, with the US election on the immediate horizon – which way it will go is anyone’s guess – I’m not sure the markets are that keen on the economic policies of either candidate, so it will possibly come down to a question of stability rather than genuine policy analysis, which could tie the Dollar’s strength to Obama being re-elected rather than the turmoil of a new President.

There isn’t much in the way of key data today – just various manufacturing PMI figures from Europe. We have had some already – surprisingly the French figure was better than expected, but the German figure was worse. This could lead to some short term gains for the Pound as Germany being the overwhelmingly dominant economy in the Eurozone; any negative data there tends to have a knock on effect.

All eyes are on the aforementioned UK GDP figure, released on Thursday – recession or no recession – we shall see. Dangerously for the Pound, expectations are that we will be out of recession, with GDP showing a small growth figure. I say dangerously, because positive expectations leave Sterling open to a lot more downside risk if growth isn’t the result.

If you have an upcoming currency requirement, especially if you are buying Euros, stay in very close contact with your CI account manager, as Thursday’s in/out gamble is probably well worth avoiding.