After the previous week of record lows against the Euro, with each day lower than the last, The Pound finds itself once again lower against the single currency, with some tourist rates offering less than one Euro to the Pound, although this says a lot about tourist rates as although the interbank exchange rate is at record lows, it is still holding above 1.11. Just how low the rate could go is uncertain, some papers, and sky news, this morning are reporting that the currency pair is expected to drop to parity, it may be expected by some, but it is hardly the consensus. The Eurozone may be more resilient that the UK to the global slowdown, but it is not immune, and the reported 5.3% drop in industrial production, reported last week, proves this. It is likely that the currency pair will establish a bottom somewhere around current levels, it may take some time, and it may dip below 1.10 beforehand, but the new year should see some recovery in the GBPEUR rate.
Unlike the Euro, the Dollar has actually started to slip back, after months of strength. Last week saw the auto bail out bill collapse in the Senate, and equities fall, although talk of resurrecting another bill, did provide a late rally in the stock markets on Friday. Unlike in previous times, when a stock market fall signalled a rise in the Dollar as a safe haven for capital, the US currency actually fell allowing the Pound to climb above 1.50, before slipping back slightly this morning. The decline of the US Dollar's safe haven position, may be due to it's large trade imbalance and government debt, however it could just be a short term trend, with many investors who have previously bought Dollars liquidating their positions before the year end.
It's a busy week for UK data, and Sterling is going to have to be as nimble as the outgoing US President to dodge all the shoes thrown at it this week. We've already had the Rightmove house price survey released overnight, and this showed, unsurprisingly, more falls in asking prices. Tomorrow we have CPI figures, expected to drop, Wednesday is the MPC minutes & employment data, Thursday retail sales, and Friday consumer confidence. The data is unlikely to offer any hope to Sterling, so any rally will have to come from weakness in other currencies, and at least against the Dollar this may be possible. The Fed announce their rate decision tomorrow, and the market expects a 50bp cut taking the rate to 0.5%. The US Fed won't much space for manoeuvre after this move, and it may leave the Dollar looking vulnerable.
Michael Corcoran | Treasury Solutions | nabCapital