The recent bombshell by Greek PM Papandreou to put the recent bailout agreement has been blasted by many senior European politicians as it has potentially undone all the hard work of the recent EU summit and behind the scenes negotiations. The Euro has wobbled as a result with the Greek finance minister not being made aware of the decision beforehand, although he stressed a commitment to the Euro. It remains unclear what the wording of the referendum should be and it is anticipated that Greece will run out of money within 3 weeks without the next bailout tranche, yet the proposed referendum may not take place for up to 5 weeks! In my view the Euro may well weaken further against a majority of currencies, however the pound is unlikely to benefit massively due to the UK being “sucked into the maelstrom”. Should you wish to secure your currency close to 9 month highs then why not look at a forward contract? Speak to one of our dealers on 0800 328 5884 to find out how.
Focus today will be on the ECB rate decision with an outside chance of a rate cut becoming ever greater the worse the situation becomes. Draghi’s first press conference as the new President of the ECB is likely to be dominated by the ever changing Greek saga so expect continued volatility particularly with GBP/EUR
The reason I am not convinced that the pound will make huge headway against the Euro is the weakness underpinning the UK economy. Looking at forecasts for UK growth, even the government’s own figures are being continually downgraded against original expectations. The NIESR, a well-respected think tank, has stated that even if a quick solution is found to the current Eurozone crisis, the UK still faces a 50:50 chance of entering recession by the end of 2012. If the crisis drags on this rises to a 70% chance and as a result they have called on the UK government to rethink its current policy of spending cuts. The UK economy only grew by 0.5% in the last quarter according to official figures and many analysts suggest this was merely a rebound from the miserable 0.1% seen Q2 rather than a strengthening of the economy as a whole.
All in all it seems that even the most optimistic (or if I was to be more cynical, the most politically astute) would suggest the UK is in for tough times ahead. On the more pessimistic side, Mervyn King’s (the Governor of the Bank of England) forecast of seven lean years now seems a real possibility. With the Bank of England having already implemented more Quantitative Easing recently - an emergency move to stimulate a flagging economy - and interest rates likely to remain low so as not to damage fragile growth, it is hard to find reasons why investors will support the pound. If the only positive to be found is “well at least we are not as bad as (insert Greece, Italy, Spain etc as you see fit)” then it may be time look at your own expectations and see how realistic they are. On GBP/EUR I have listened to many clients patiently waiting to hit 1.20- this level has not been achieved since August last year. On GBP/USD even the 1.70 mark hasn’t been seen for 2 years.
Utilising limit orders to achieve a good rate in a volatile market is one way of maximizing your money without having to put the dream move on hold for another year- call now on 0800 328 5884 to discuss your specific requirements and find out the options that suit you.
Last night’s Federal Reserve meeting saw the Dollar suffer against most currencies (bar the pound) as Ben Bernanke admitted economic growth had been “frustratingly slow”. Whilst the economy did strengthen according to the figures, the Fed have revised their growth forecasts down and remain committed to very low interest rates- a move which should keep the Dollar vulnerable.
So why has the pound not risen against the Dollar like other currencies? Once again it is down to our own economic problems mirroring those in the US with lower than expected growth, low interest rates, high unemployment and serious political divisions on how to deal with high budget deficits. Added to the fact that during times of economic uncertainty people tend to look for safer options and with the Dollar the global currency of choice, it gains a lot of support as a result. The current global crisis is unlikely to disappear overnight so in my view the Dollar will retain current levels against the pound despite the troubles in the US.
To talk to a currency expert or for more information on this report, call us on 0800 328 5884 or 01494 725 353 or e-mail firstname.lastname@example.org.
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