# Where next for sterling?



## keiths (Jul 27, 2009)

After the doom and gloom in the markets over the winter months, spring brought a cheer back into the markets and talk of “green shoots” helped sterling to lead the march higher across the markets. In May and June we saw a plethora of improved data from around the globe leading to better sentiment and lifting the pound which was sold heavily and progressively as the recession enveloped the global markets. More recently however we have seen more bad news returning to add a cold dose of medicine for the UK economy. The bad news has centered on the GDP contraction of 2.4%- the sharpest fall since 1958; the rising unemployment which follows falling GDP- unemployment is now the highest in ten years at 7.6%; finally a big area for concern is the level of public debt which is running at 12% of GDP and set to rise further. 

With the precarious and fragile situation that the UK economy is now positioned you could have expected another dip in the pound- however it has been so far resilient in the face of bad news and is holding above 1.60 against the USD, 150 against the Japanese Yen and 1.15 against the euro. The three levels are key for sterling to hold its head above- a sustained break below on any of these levels could cause a sharp retraction in sterling across the markets.

The main reason that sterling has held these levels thus far is due to similar problems being experienced on a global scale, for example Eurozone GDP has contracted by 2.5%. Another reason is the continuing move towards risk appetite in the equity markets which have performed strongly of late. Investor confidence leads to a move out of safe haven currencies such as the USD and Japanese Yen and into riskier commodity based currencies such as the Australian Dollar and Canadian Dollar. On the risk scale sterling is more of a beneficiary on a move into risk appetite than the euro which has been leveraged as a safe haven behind the US dollar and Japanese Yen. 

Going forward there has been a growing expectation of severe issues for the Eurozone with ongoing credit issues in Germany and Eastern Europe threatening to send the euro tumbling and forcing the ECB into unbudgeted stimulus measures. Also the severe fall in the pound amid the global slowdown is considered overdone by as much as 10% from current levels. As momentum for recovery hopefully ensues then sterling is set for further gains and I feel this will play out to target 1.75 against the USD, 1.25 on the euro and 180 against the Japanese Yen. 

However before we get carried away on the pound bandwagon we must consider the powerful reminders that history can teach us. If we step back to the mid 70’s we can find ourselves in a similar position with monetary and fiscal policy loose. In 1976 we failed to tighten fiscal policy as recovery occurred- this led to investors fleeing sterling and the IMF bailing out Britain. A similar fate could be around the corner if a proactive strategy on fiscal and monetary policy is not followed. With an election looming and clouded agendas on spending and cuts from party leaders, the risk is that economic conditions continue to wane amid a lack of strategy then we could be looking at history repeating itself.


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## jojo (Sep 20, 2007)

the one thing we can know for sure is that no one knows for sure what will happen with the exchange rate! But obviously its an issue close to the hearts of a lot of us expats who rely on sterling

Jo xxx


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## keiths (Jul 27, 2009)

Hi Jojo,

I agree, no-one can know for sure - if only I had a crystal ball. We feel we're looking at 1.20 for GBP-EUR by end of summer and possibly 1.25 by year end. 

Keith


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## Stravinsky (Aug 12, 2007)

keiths said:


> Hi Jojo,
> 
> I agree, no-one can know for sure - if only I had a crystal ball. We feel we're looking at 1.20 for GBP-EUR by end of summer and possibly 1.25 by year end.
> 
> Keith


Ohhhh .... well let me guess ...... what do you do for a living!


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## xabiaxica (Jun 23, 2009)

Stravinsky said:


> Ohhhh .... well let me guess ...... what do you do for a living!


great minds............................................


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## Suenneil (Feb 17, 2009)

keiths said:


> After the doom and gloom in the markets over the winter months, spring brought a cheer back into the markets and talk of “green shoots” helped sterling to lead the march higher across the markets. In May and June we saw a plethora of improved data from around the globe leading to better sentiment and lifting the pound which was sold heavily and progressively as the recession enveloped the global markets. More recently however we have seen more bad news returning to add a cold dose of medicine for the UK economy. The bad news has centered on the GDP contraction of 2.4%- the sharpest fall since 1958; the rising unemployment which follows falling GDP- unemployment is now the highest in ten years at 7.6%; finally a big area for concern is the level of public debt which is running at 12% of GDP and set to rise further.
> 
> With the precarious and fragile situation that the UK economy is now positioned you could have expected another dip in the pound- however it has been so far resilient in the face of bad news and is holding above 1.60 against the USD, 150 against the Japanese Yen and 1.15 against the euro. The three levels are key for sterling to hold its head above- a sustained break below on any of these levels could cause a sharp retraction in sterling across the markets.
> 
> ...



Keith!

Naughty naughty! ..... lovely to see you on our forum but make sure you behave yourself ..... no advertising, touting for business! no matter how much I like you in real life I´ll slap your wrists if you bend the rules! 

Sue


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## jojo (Sep 20, 2007)

Suenneil said:


> Keith!
> 
> Naughty naughty! ..... lovely to see you on our forum but make sure you behave yourself ..... no advertising, touting for business! no matter how much I like you in real life I´ll slap your wrists if you bend the rules!
> 
> Sue


Aaaah, you know each other then LOL 

Jo xxx


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## keiths (Jul 27, 2009)

Suenneil said:


> Keith!
> 
> Naughty naughty! ..... lovely to see you on our forum but make sure you behave yourself ..... no advertising, touting for business! no matter how much I like you in real life I´ll slap your wrists if you bend the rules!
> 
> Sue


Hiya sue,

didnt think I was touting for business with that post - no mention of my company, just posting information. Let me know if I've got the wrong end of the stick. Hope to see you soon

keith


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## jojo (Sep 20, 2007)

keiths said:


> Hiya sue,
> 
> didnt think I was touting for business with that post - no mention of my company, just posting information. Let me know if I've got the wrong end of the stick. Hope to see you soon
> 
> keith



Dont worry, one wrong move and we'll nuke you LOL !!!

Welcome to the forum Keith 


Jo xxx


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## Suenneil (Feb 17, 2009)

keiths said:


> Hiya sue,
> 
> didnt think I was touting for business with that post - no mention of my company, just posting information. Let me know if I've got the wrong end of the stick. Hope to see you soon
> 
> keith


 Dont worry Keith you are safe for now! trust me Im a dragon when I need to be ... but you are within the boundaries!

Sue x


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## jkchawner (Dec 21, 2008)

keiths said:


> After the doom and gloom in the markets over the winter months, spring brought a cheer back into the markets and talk of “green shoots” helped sterling to lead the march higher across the markets. In May and June we saw a plethora of improved data from around the globe leading to better sentiment and lifting the pound which was sold heavily and progressively as the recession enveloped the global markets. More recently however we have seen more bad news returning to add a cold dose of medicine for the UK economy. The bad news has centered on the GDP contraction of 2.4%- the sharpest fall since 1958; the rising unemployment which follows falling GDP- unemployment is now the highest in ten years at 7.6%; finally a big area for concern is the level of public debt which is running at 12% of GDP and set to rise further.
> 
> With the precarious and fragile situation that the UK economy is now positioned you could have expected another dip in the pound- however it has been so far resilient in the face of bad news and is holding above 1.60 against the USD, 150 against the Japanese Yen and 1.15 against the euro. The three levels are key for sterling to hold its head above- a sustained break below on any of these levels could cause a sharp retraction in sterling across the markets.
> 
> ...


wtf that's me lost night


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## keiths (Jul 27, 2009)

jkchawner said:


> wtf that's me lost night


The pound pushed up to 1.65 on the USD from 1.6350 and the euro pushed to 1.42 against the USD. Ultimately we saw a shift back into risk appetite with USD and YEN weakness, strength in the commodity currencies such as the AUD, ZAR and CAD and also a boost for the pound and the euro. 

Other news out which is sterling supportive came from UK Rightmove house price data which rose 0.6% for July. This data supports the sentiment that the rate of the fall in house prices is markedly slowing and a bottom may now be in place.

So we have ended the week pretty much where we started at 1.1550 after several ups and downs in the markets. The fact the sterling is still holding above 1.15 is very encouraging and still holds the course for a breach of 1.20 by the end of September.


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## jojo (Sep 20, 2007)

keiths said:


> The pound pushed up to 1.65 on the USD from 1.6350 and the euro pushed to 1.42 against the USD. Ultimately we saw a shift back into risk appetite with USD and YEN weakness, strength in the commodity currencies such as the AUD, ZAR and CAD and also a boost for the pound and the euro.
> 
> Other news out which is sterling supportive came from UK Rightmove house price data which rose 0.6% for July. This data supports the sentiment that the rate of the fall in house prices is markedly slowing and a bottom may now be in place.
> 
> So we have ended the week pretty much where we started at 1.1550 after several ups and downs in the markets. The fact the sterling is still holding above 1.15 is very encouraging and still holds the course for a breach of 1.20 by the end of September.



I play a bit with the sterling/euro thing and the one thing I would say is that there are no worthy predictions and I'm sure you'd agree, so many unpredictable variables! In fact I've often thought I'd be better off backing the horses LOL :eyebrows:

Jo xxx


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## Tallulah (Feb 16, 2009)

keiths said:


> The pound pushed up to 1.65 on the USD from 1.6350 and the euro pushed to 1.42 against the USD. Ultimately we saw a shift back into risk appetite with USD and YEN weakness, strength in the commodity currencies such as the AUD, ZAR and CAD and also a boost for the pound and the euro.
> 
> Other news out which is sterling supportive came from UK Rightmove house price data which rose 0.6% for July. This data supports the sentiment that the rate of the fall in house prices is markedly slowing and a bottom may now be in place.
> 
> So we have ended the week pretty much where we started at 1.1550 after several ups and downs in the markets. The fact the sterling is still holding above 1.15 is very encouraging and still holds the course for a breach of 1.20 by the end of September.



Ben Bernanke has been getting loads of kudos recently regarding his management of the crisis in the States. Jean-Claude Trichet is coming a poor second currently to him regarding management of the crisis. JC Trichet's refusal to lower EU interest rates has hurt Europe's competitive edge, although clearly it has been more attractive for investors - but then again, what investors?? 

Hopefully the UK economy will recover ahead of the Eurozone, albeit slightly. The Eurozone will be forced to maintain lower, or even lower interest rates and the UK and the States will be in a position of recovery commenced and inflation control taking over. Thus interest rates starting to rise.

If this utopia turns converts to reality, the pound will not only start to head for the dizzy heights of 1.4 plus, but also might start gaining its old currency status and we can forget about the euro becoming the world's safe haven currency. I suspect it'll be a few years with a slow grinding progress towards the above, but I do believe the analysts and numerous reports stating that whilst we are not out of the storm, we are out of the eye of the storm and the worst is over.

Here's hoping.....amongst other things - the UK press don't cause any tidal waves along the way to recovery and that we are left to sail relatively calm waters whilst we head to recovery. 

What does that mean in the meantime for us expats and those reliant on sterling as income?? Hopefully they will be no joining of the euro at the current levels, if at all. Returning to the UK now is a gamble in itself as you might well be consolidating losses, just as the pound starts to recover. Horrible decisions ahead for those near the troughs of their ability to hang on financially whilst waiting for the turnaround. Even today, with the euro hovering around the 1.15 mark, as low as it is, it's already much more attractive than a few months ago to come here and much less attractive to return to the UK, especially if the reports that house prices are starting to climb in the UK are true, double whammy for those going back - more expensive pound/more expensive property. As I said, tough choices ahead.

In the meantime, for those fortunate enough to have some cash, there are offers out there that I don't think will be repeated any time soon once things pick up. We've just purchased a 32" flat screen telly at a bargain price - 39% off the cost it was less than 12 months ago. Similar things to be had in properties, I understand. As the saying goes, one man's misfortune is another man's opportunity. Twas ever thus.


Tallulah. 

ps - Keith interesting to know though - although you can't advertise - are you an IFA??


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## keiths (Jul 27, 2009)

Tallulah said:


> ps - Keith interesting to know though - although you can't advertise - are you an IFA??


Hi Tallulah,

No I'm not an IFA. I run the costa del sol, portugal and canary island offices for a well-known foreign exchange company. I'm more than happy to post relevant infomation that folks could find interesting. Glad to be here!


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## Suenneil (Feb 17, 2009)

keiths said:


> Hi Tallulah,
> 
> No I'm not an IFA. I run the costa del sol, portugal and canary island offices for a well-known foreign exchange company. I'm more than happy to post relevant infomation that folks could find interesting. Glad to be here!


Hiya again Keith ..... you will need to upgrade to a Premium Account to post info if it promotes the Company ....


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## Tallulah (Feb 16, 2009)

keiths said:


> Hi Tallulah,
> 
> No I'm not an IFA. I run the costa del sol, portugal and canary island offices for a well-known foreign exchange company. I'm more than happy to post relevant infomation that folks could find interesting. Glad to be here!




Say no more!  Welcome to the forum.


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