Market Update – GBP / EUR
We’ve been in the habit of sending one update per week, but felt that the latest exchange rate movements warrant further comment.
Our view that sterling would continue to appreciate has been well vindicated by this week’s rally. Last week we had weaker than expected GDP figures. The pound shrugged off that data and pushed on to new highs. Yesterday we hit another bump in the road after US credit ratings agency Standard and Poors downgraded its view on the UK banking sector, citing the UK’s “weak economic environment”. The credit rating on UK banking sector is now comparable with Portugal. This could be a prelude to a downgrade on the UK as a whole, a move that would have widespread repercussions for the national debt as foreign investors would demand a higher interest rate for the additional implied risk. That will not help Mr Darling’s plans to “halve the deficit in four years”.
On the whole we still feel that sterling is determined to rally, but we have now seen a five cent rise in just three weeks, so euro buyers should be on guard in the short term and consider covering at least half of any requirement now. Despite yesterday’s turnaround the technical is still positive as long as we can hold the week’s earlier low just below 1.1400.
Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.
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