New Record lows for Sterling
For many weeks analysts have been predicting and discussing the grim outlook for Sterling that has been unraveling itself day by day. However not even the most pessimistic could have predicted the losses experienced on Monday morning. Trading levels against the Euro had dropped by more than 3% at its lowest compared to that of Friday afternoon. To date, most of the expected Sterling weakness has been fuelled by imminent interest cuts by the BoE, and with the next decision being more than 3 weeks away, this drop in the market came as somewhat of a shock.
For many weeks analysts have been predicting and discussing the grim outlook for Sterling that has been unraveling itself day by day. However not even the most pessimistic could have predicted the losses experienced on Monday morning. Trading levels against the Euro had dropped by more than 3% at its lowest compared to that of Friday afternoon. To date, most of the expected Sterling weakness has been fuelled by imminent interest cuts by the BoE, and with the next decision being more than 3 weeks away, this drop in the market came as somewhat of a shock.
The early losses for Sterling were a result of the US investment bank Bear Stearns, being bought by JP Morgan Chase for just $2 a share, consequently intensifying fears about the health of the UK financial sector. Banking shares in the UK were down across the board, with HBOS falling by as much as 11.7%, while Alliance & Leicester fell by 9%, and Barclays by more than 6%.
The US has suffered its fair share of problems in the financial sector, most noticeably with sub-prime lending. Bear Stearns however is most certainly not a small fish in the large US pond. Bear Stearns is the nation’s fifth largest investment bank, which gives you a very good idea of the seriousness of situation.
"One reaction is shock that a company that reaffirmed its book value at around $84 on Wednesday can be worth $2 per share four days later on Sunday," said Deutsche Bank analyst Mike Mayo.
This turn of events has sent global markets tumbling, and further supported the likelihood that the US is headed into a recession. More importantly, is the significant effect that this has had on Sterling’s strength. Britain is somewhat identified with the problems in the US, having recently been through the Northern Rock story itself. The UK is seen to be structurally similar to the US as it shares similar issues of personal debt and falling house prices. This is by no means implying that we too could head into a recession, but instead paints an even bigger negative picture than some had anticipated.
"It's guilt by association. The UK has all the problems of the United States with a housing market that looks unhealthy and an indebted consumer, there are continuing fears about where the next shoe is going to land in the UK banking sector," said Jeremy Stretch, strategist at Rabobank.
With losses of 15% during the last 9 months, and with almost zero positive predictions for Sterling, it seems that the next 9 months of this graph mat not look too dissimilar. Therefore if you know you will have a Euro requirement this year, ensure you contact your FCD account manager to discuss the available options to you to secure your currency rate.
The day ahead
The day ahead
Putting the Bear Stearns crisis aside, the ongoing subject of interest cuts is still very much of great importance to Sterling and its future direction. Today will see some potentially crucial information being released.
9:30am – Consumer Price index and Retail price index figures are released by the Office of National Statistics for the UK.
These figures provide a key measure of inflation within the UK, which is currently the main hurdle for the BoE to get over. With inflation currently above target, further interest cuts are likely to be spread out through the year, and this data could give a further indication as to when the next could realistically be expected.
18:15pm – FED interest rate decision
Following the collapse of Bear Stearns, a cut of 100 basis points seems more possible than ever. Typically if such a significant cut is announced, the currency in question would be expected to weaken, which could be good news in the short term for those of you looking to purchase dollars. If you have a dollar requirement in the near future, it may be advisable to contact FCD and find out if this decision benefits your currency need. This decision could however give further strength to the Euro along with the rest of weekend’s events. The greenback fell to a record low against the Euro on Monday, and an interest cut will certainly not help its situation.
And finally...
Britain is bracing itself for a wintry arctic blast this Easter which will send temperatures plummeting below zero and bring heavy rain and snow storms. With snow showers and freezing winds due over the four-day break, the roads are expected to be miserable places, with chronic traffic jams expected for millions across the country. So if you’re sick and tired of the depressing British weather, why not visit www.propertyline.co.uk and find that getaway holiday home in the sun you have always wanted.
Britain is bracing itself for a wintry arctic blast this Easter which will send temperatures plummeting below zero and bring heavy rain and snow storms. With snow showers and freezing winds due over the four-day break, the roads are expected to be miserable places, with chronic traffic jams expected for millions across the country. So if you’re sick and tired of the depressing British weather, why not visit www.propertyline.co.uk and find that getaway holiday home in the sun you have always wanted.
FOR MORE INFORMATION OR ANY ASSISTANCE WITH UPCOMING CURRENCY REQUIREMENTS PLEASE CONTACT DJW@CURRENCIES.CO.UK
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