The pound dropped sharply against all major currencies when the markets opened yesterday after the announcement on Friday that Moodys has stripped the UK of its coveted Triple A credit rating.
The news isn’t really as big a surprise as it first seems as ratings agencies had threatened to do it last year by downgrading UK forecasts, as well as stripping the US and others (and it’s not like the UK economy has actually improved since then). As such some of it had been priced into currency rates but it still had some shock value. The real issue will be how the government reacts to losing the one thing they guaranteed to protect during all the talk of austerity- early signs suggest Osborne will not change tack and his comments in Parliament yesterday afternoon boosted the pound and will hopefully help protect sterling going forwards.
My view is that whilst sterling may struggle in the immediate aftermath of the down grade, it will gradually claw back some ground as people realise very little has actually changed for the UK. Moodys have the rating outlook on stable suggesting further down grades are a long way off, and we are nowhere near the junk ratings that some Eurozone states experienced. However watch out for official UK GDP data on Wednesday as this will be a key short term driver of the pound.
If you are looking at a foreign property purchase or other commercial transaction involving fx imminently then it may be wise to take stock now, however if you have plenty of time to play with then why not discuss your requirement in more detail with your broker and design a strategy that suits your needs?
With a communist, a comedian, and a playboy all in the running to be the next Italian leader then all you need is a pub and you have the makings of a great joke. Sadly though this is the reality of the situation in Italy, which at the time of writing, hadn’t been resolved. The risk of a weak coalition being elected, or worse one which actively goes against the austerity measures implemented by Mario Monti, is something that has panicked both European politicians and currency speculators alike. The Euro dropped like a stone following early exits polls that suggested no outright winner.
Whilst Mario Draghi has managed to weave a spell around the unity of the Euro, creating an air of confidence that seems difficult to justify for many, I think it is only a matter of time before problems like the Italian election keep surfacing and damage the Euro. The root problems of recession, joblessness and debt have yet to be fully tackled in Europe and I think UK, US, and more so Asian counterparts, are much better positioned in these areas.
A strong Euro will hamper exports compared to those currencies outside the Eurozone so I would not be surprised to see it weaken towards the second half of the year to just under the 1.20 mark again. If you have any views of your own about market forecasts or indeed the service you receive here then why not click here and tell us your thoughts?
The USD has gained huge ground against the pound of late with a combination bad news in the UK and the Fed stopping their bond buying program (in stark contrast to what some members of the bank of england want). The debt ceiling in the US is still a concern but with all the negative sentiment for the pound currently it is possible Cable could test 1.50 but seems unlikely to get up anywehere near 1.55 in the near future.
With the single currency I think the Dollar will continue to make headway back to pre-Christmas levels of sub 1.30 as the months roll on and more European problems emerge.
South African Rand Fights Back
The Rand is one of the most volatile currencies that we trade at Foreign Currency Direct and recenly it has very much lived up to its reputation. Recent global risk appetite has seen the Rand claw back some 8% against sterling since this time last month, and whilst mining concerns have not fully been resolved there does appear to have been an easing of tensions from striking workers.
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