Sterling exchange rates face bumpy ride

  • 14 years ago
  • Uncategorized
The Pound has come under increasing pressure in the last 2 weeks, but faces a tricky time ahead, according to economic forecasters.
Tomorrow’s GDP figure, which is the first estimate of growth in the UK economy over the second quarter of 2010, is likely to have a significant impact on sterling. Analysts expect a quarterly growth rate of 0.6%, and anything closer to zero would put the Pound under further pressure, with worse exchange rates likely to follow.
This week already, retail sales figures showed a disastrous drop of 1.3% over the last 12 months, adding to the feeling that all is not well for UK plc. Last night Ben Bernanke, the chairman of the US Federal Reserve, gave a damning speech on the state of the American economy, and the old adage that when America sneezes, Britain gets a cold, is perhaps particularly relevant at the moment.
With UK inflation running above target, the Bank of England has little room to manoeuvre on interest rates and fiscal policy – so any negative news in the UK at the moment is particularly open to pushing the Pound lower.
“The outlook for the pound is negativeafter the MPC questioned the UK’s growth outlook,” said Ian Stannard, senior currency analyst at BNP Paribas, while Steven Walsh, analyst at FX brokers Currency Index, added that “clients are now buying Euros and Dollars in advance of their requirements, based on the potential for exchange rates to decrease in the coming weeks”.
For individuals buying property overseas, and businesses importing goods from abroad, these are worrying times. A drop in the value of sterling of only 3% would increase the cost of a €100,000 Spanish property or $130,000 purchase of American goods, by £2,500.
“By using an FSA-regulated broker, both individuals and businesses can fix rates in advance of their currency requirements, reducing the risk of the rate moving against them”, added Walsh. GDP figures are published at 9.30am BST tomorrow (July 23rd).

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