IS IT TIME FOR THE STERLING BOUNCE?
The Pound stopped short of £1=€1, interrupted by the new year holiday. House prices are still falling in Britain and the States, dampening consumer spending. Britain’s manufacturing PMI improved slightly.
Although the turn of the year was a little more volatile than Christmas week Sterling still managed to stick within a four cent range against the US Dollar. It had a look at $1.44 several times but always rebounded, on one occasion as high as $1.48. When London opened this morning the Pound was trading at $1.45.
As the old year ended investors were taking a particular interest in the Pound against the Euro. Having spent the year on Sterling’s case they found themselves within striking distance of their long term objective: £1=€1.
One way or another the holiday fortnight, and especially the New Year break, got in the way. Enough players were ready to lock in some end-of-year profits on their short Sterling positions to prevent the Pound hitting the magic number.
There were precious few UK economic data to affect the Pound one way or the other. Home buyers once again used spare cash to reduce their mortgages rather than leaving in the bank for a diminishing return. The implication was that spending money is not at the top of most families’ to-do list, as evidenced by well known high street names going out of business and M&S issuing a profit warning. Mortgage approvals fell to a record (ten year) low in November and the Halifax announced a 16 per cent annual fall in house prices. The one positive note came with a rise in the manufacturing sector Purchasing Managers’ Index. It was still at a lowly 34.9 but the improvement was unexpected.
In the States the presidential election process continued at its glacial pace towards Mr Obama’s inauguration. The latest proposal from the Obama camp is that $300 billion of tax cuts will be introduced to help the economy recover its momentum. That would no doubt be a relief to householders, who saw the value of their properties slide further with an 18 per cent fall in the year to October, according to the Case/Shiller index. The US manufacturing PMI fell nearly four points to 32.4, its weakest reading since 1980.
Investors are still nervous about the Pound, particularly about the continued decline in UK interest rates and the government’s intention to use quantitative easing (printing money) to stimulate the economy. US interest rates can fall no further and the world is all too well aware that quantitative easing will be a major feature of the Obama administration’s strategy. The supply of Dollars is likely to grow more quickly than the supply of Pounds, suggesting a weakening Dollar this year.
For more information and expert guidance on the currency markets, call Moneycorp today.
Laura McLoughlin – Laura.McLoughlin@moneycorp.com
Regional Manager – Florida
Moneycorp Inc
7380 Sand Lake Road
Suite 410
Orlando
Florida 32819
TEL: +1 407 352 5890
FAX: +1 407 352 5893
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