Sterling Exchange Rate Forecast

Sterling falls across the board
The pound has fallen sharply against the Euro and the US Dollar after the head of the Bank of England said a weak currency was “helpful” to the economy. Bank governor Mervyn King said in a newspaper interview that a fall in the exchange rate would help to balance the UK economy by giving exports a lift.

Analysts said the pound was likely to fall further against the euro. The pound has weakened in recent days on fears about the high level of UK debt. Rates now stand as follows:

  • GBP/EUR 1.0914
  • GBP/USD 1.6030
  • GBP/CAD 1.7459
  • GBP/CHF 1.6483
  • GBP/AUD 1.8440
  • GBP/NZD 2.2275
  • GBP/ZAR 11.950
  • GBP/JPY 145.17

Bank of England Comments
The comments reiterated the central bank’s long-held view on the currency and the economy, and analysts said the market considered his remarks a good opportunity to wipe out sterling’s gains made the previous day.

Sterling had rallied on Wednesday after minutes from the BoE’s policy meeting earlier this month showed a unanimous vote not to extend quantitative easing in September.

Market participants said those gains had been overdone, and some analysts said that even though King’s comments on Thursday did not offer new insight into the BoE’s position on sterling, his statement helped to revive momentum to dump the pound.

Sterling is a whipping boy
“When the market’s down on a currency, it will jump on anything that justifies selling it,” said Stuart Bennett, currency strategist at Calyon in London. “Sterling is certainly the whipping boy at the moment.”

Speaking to The Journal newspaper, King also said UK growth may be beginning to pick up, but that people should not get too carried away as growth was very small, echoing the cautious stance shown in the BoE minutes released the previous day.

The latest bout of pound weakness began on Monday, when traders seized upon an article in the BoE Quarterly Bulletin that said sterling’s long-run sustainable exchange rate may have fallen due to an increased focus on Britain’s economic imbalances.

Summary
So, the view is that the pound is under p