Why has Sterling fallen and the pound (GBP) dropped?

A quick update on developments for the pound since this mornings post. Sterling yesterday hit the highest level against the Euro for many months, and topped out at 1.1864. Today however the rise was halted and rates have dropped back – currently rates are 1.1730.

So why the fall?
Unemployment figures this morning showed that UK unemployment rose to 2.261 million in the three months to April, which is the highest in 12 years. The total jobless rate rose to 7.2%, the highest since July 1997. However, these figures while bad were actually much better than forecast, and the pound actually made some gains.

The actual reason for the fall is profit taking from clients that speculate on currency markets.
Sterling was particularly weak against the euro as market participants used the opportunity to take profits after it jumped to another 2009 high yesterday. So, this big sell off of Sterling has flooded the market hence the weakening of the currency. Simple supply and demand.
“We’ve had a pretty significant downward move in euro/sterling and maybe it’s a good time for a correction,” Standard Bank currency strategist Steve Barrow said.
“The labour market data was better than expected, but it just provided an excuse to sell sterling at better levels,” he added.
It’s important to remember however that Sterling remains relatively strong up around 8% so far against the Euro. The recent gains in sterling reflected the belief that the UK economy may be better placed to recover from the current recession than the euro zone.
I believe this will continue, and I still look for rates to break through 1.20 by year end.
More tomorrow as usual.

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