Sterling gains, but not likely to last

Sterling Gains
Sterling hit a 1 week high against the dollar and the euro yesterday on news the UK services sector grew at its fastest pace in almost two years, easing concerns about the UK economy. The PMI index for the services sector rose to 54.1 for August from 53.2 the previous month and this was the strongest reading for close to two years. This caused the pound to rise and pull exchange rates up slightly. Rates stand as follows at 08:30am:

  • GBP/EUR 1.1450
  • GBP/USD 1.6353
  • GBP/AUD 1.9423
  • GBP/NZD 2.3921
  • GBP/CAD 1.7973
  • GBP/ZAR 12.488
  • GBP/JPY 151.61

Sterling got an added boost from waning risk aversion as global equity markets regained some ground led by banking shares and after the European Central Bank held its key interest rate unchanged at a record low 1 percent.

Still, the backdrop for sterling remains very negative on the growing view the Bank of England will keep interest rates low for some time, as reflected by falling UK bond yields, which have been keeping the currency under selling pressure, market participants said.Sterling secured a firmer tone on Thursday with relief from domestic and international factors.

Following recent weakness, the data revived some degree of optimism over underlying economic conditions, although confidence is still likely to be extremely fragile given the extremely important issue of rising government debt. Fears over the overall policy requirements during the next few months will remain a negative Sterling factor.

So, yes the pound has risen, and many clients may wish to hold in the hope rates will continue to rise. However, if you are holding out for a higher rate, then consider the fact that the UK government debt means analysts think the pound is going to remain weak for quite a while.

UK Economy, and Sterling exchange rates unlikely to recover
This BBC Article outlines how the EU economy is now set to rise, and another article from the BBC also shows how the downturn in the US is coming to an end.

World Recovery – UK will lag behind
Britain will be the last major economy to exit recession, according to alarming forecasts. The UK will fail to record a single quarter of positive growth in 2009, the highly respected Organisation for Economic Co-operation and Development predicted yesterday.

While trading partners such as Germany, France and Japan have already exited recession, Britain’s economy will not return to growth until 2010. The OECD says it expects the economy to contract 4.7 per cent this year – much more than the 3.5 per cent predicted by Alistair Darling in April.

In the fourth quarter output will be flat, the report says, meaning Britain is likely to return to growth nine months later than Germany, Japan and France. Even beleaguered Italy is expected to muster a 0.4 per cent expansion in the final three months of 2009.

So, if you are holding hoping for a continued rise in rates, in my opinion you will be dissapointed. We are seeing the occaisional spike, but as the UK lags behind other major economies, Sterling exchange rates are likely to remain poor.

Summary
Forward contracts are available to lock in todays rates, even if you dont need the currency for some time.

If you’re holding out for a higher rate, you need to ask yourself why you think that rates will rise, given all the negative information about the UK economy. If you cant answer that question, then you are simply ‘wishing’ the market will move in your direction.

Now, wishing is not a sound economic tool when dealing with large amounts of money! Look at the facts, then contact us to tell us your requirements, and let us help you achieve the best possible rate within your timeframe.

Dont leave it to chance, and dont let the markets control you. Take control of your situation by opening an account with us today and discussing the options available to you.

When you get in touch, ensure you mention you heard about foremost currency group through our Blog. Simply quote ‘Blog’

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