New Government gives Sterling strength – will it last?

Good Morning. New UK Prime Minister David Cameron is beginning to shape his government, after the Conservatives agreed to form a historic coalition with the Lib Dems. Mr Cameron was installed as PM on a dramatic day that saw Lib Dem leader Nick Clegg announced as his deputy. The news has given the pound some strength, and this morning rates are as follows:

  • GBP/EUR 1.1820
  • GBP/USD 1.4966
  • GBP/AUD 1.6747
  • GBP/NZD 20.911
  • GBP/CAD 1.5248
  • GBP/JPY 138.97
  • GBP/ZAR 11.239
  • GBP/CHF 1.6626
  • EUR/USD 1.2660

Sterling Strength
Cameron’s move into No. 10 Downing Street removed some of the uncertainty that drove sterling to a 13-month low against the dollar last week after an inconclusive election gave no party an absolute majority in parliament.

“While we doubt that any government would be able to quickly put the UK back on a more sustainable fiscal path, this may raise the risk for ‘positive’ political surprises and could leave the pound well positioned to gain,” said Todd Elmer, currency strategist at Citigroup in New York.

A broadly weaker euro and a surprise surge in UK industrial production data also supported sterling, and buying rates for the Euro are almost at the highest in a year.

Euro weakness
The Euro has been hurt by doubts that a recently announced $1 trillion package may not be enough to stop a Greek debt crisis from spreading. This is the main cause of GBPEUR rates rising in the last few days and has helped push rates to the highest we’ve seen in quite some time.

So will the pound keep rising?
Now that the political uncertainty is over, the markets should settle from the volatility we’ve seen in recent weeks and months. However, Britain faces a period of economic woe, with taxes rising and borrowing being cut back in order to reduce our debt as quickly as possible. While this will be good for the pound in the long term, it would drive up the cost of government borrowing and could push the pound further down, potentially derailing any nascent recovery.

So, Sterling will recover now there is more stability on the political side, but there’s a good chance things will get worse before they get better because the fundamental problems with our deficit still remain.

Fixing an exchange rate while the Pound is strong
Many clients will now wish to lock in the current exchange rate while it’s so good, and to protect them from a downturn in the recent trend. Even if you don’t actually need your currency for some time, you can fix a rate for up to 2 years into the future with a Forward contract. A 10% deposit is usually payable, with the remaining 90% only due when you actually need your Euros.

Most importantly, your exchange rate is guaranteed thus protecting you from unfavourable movements in the market.

The main advantage of this type of contract is peace of mind that you are no longer exposed to market movements, and this allows you to budget effectively and know the true cost of an overseas property purchase well in advance. Furthermore, you retain the majority of your Sterling funds allowing you to continue earning interest. The fact the rate is also so high is an additional bonus to these benefits.

To discuss how to fix a rate with the Foremost Currency Group, click below to open a free trading facility, and have a free consultation on the options available to you. The market position may not last for long, so don’t hold out for an inch only to lose a yard!

Open a free trading facility, and quote BLOG for preferential rates…

Open an online Trading Account

Email Me

Foremost Currency Group

Leave a Reply

Your email address will not be published. Required fields are marked *