Sterling to EUR & USD rates tumble

Yesterdays Trading
The pounds run could not last forever, and yesterday was the end of the continued gains for Sterling. The pound dropped heavily against both the Euro and the Dollar, wiping out the recent gains the pound has made. As outlined in yesterdays report, those clients that left it to chance in the hope rates would continue to climb may have missed their chance. Clients that placed Stop and Limit orders, in order to aim for a higher rate while protecting themselves limited their loss to management and predictable levels.

So, why the sudden drop? It’s all to do with deteriorating market sentiment. Despite a jump in services sector data from the UK yesterday that pushed the pound higher, the main reason for the decline is again mainly due to the dollar.

As outlined in other posts this week, Sterling has gained on the back of the US Dollars losses, as investors moved funds from the dollar to the pound. Now, other US data has pushed investors back, as weak U.S. employment and services sector data also stung optimism on the global economic outlook, further helping the dollar against higher risk currencies such as sterling.

A worsening political crisis for the Prime Minister Gordon Brown also helped knock the pound, as Communities Secretary Hazel Blears became the latest high profile minister to tender her resignation from the government. The political turmoil in government has knocked the pound, although not by very much.

Blears’ decision to step down follows Tuesday’s resignation by interior minister Jacqui Smith.
The resignations are seen as undermining Brown’s authority on the eve of European and local elections in which his Labour Party is widely forecast to suffer a dismal defeat. “These political dynamics are likely to weigh on sterling too,” Rabobank’s Stretch said.

Interest Rates
Today is an important day, as we see interest rate decisions for the UK, EU and Canada. Expect volatility in rates one way or the other, and do not expect things to stay the same for long!

Analysts do expect rates to be left on hold for both the UK and EU, and the main thing analysts and the markets will be looking for, is to see whether policymakers make any further announcements on its quantitative easing programme.

If its announced this will be increased, then expect Stering exchange rates to continue to fall. If however there is no announcement for further measures, we could see a recovery.

In the EU, the consensus is that rates will be left on hold at 1%. I’m going to go out on a limb however, and say that there is a chance that rates will be cut, possible by 0.25% or even 0.50%. also watch for any QE announcements here, as that will also undermine the Euro.

So, all is not lost. If you are buying currency with Sterling, you will want no QE measures from the UK, some QE from the EU and a rate cut there also. This will help rates recover. If you are selling currency back to Sterling, then medium term forecasts do suggest rates will climb by year end, so you may wish to take advantage of the current drop and lock rates now.

Whatever your requirements, open an account with us today (click the orange banner below to take you to the online application form), and you can then discuss the options available to you for your specific requirements. Registering with us is free, does not obligate you, but gives you the opportunity to discuss your needs with an experienced broker that can help you give you all the information you need to make an informed decision on when to buy.

Todays Data
UK
09:00am – Halifax House Prices
12:00pm – Bank of England Interest Rate Decision

EU
10:00am – Retail Sales
12:45pm – ECB Interest Rate Decision

US
13:30pm – Jobless Claims
13:30pm – Non-Farm Productivity
13:45pm – Fed Chairman Speech

Canada
14:00pm – Interest Rate Decision

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