Currency Forecast - Sterling Vs. American Dollar 17th December 2008

  Sterling has weakened sharply against the Euro over the last two weeks, but has managed to make gains against the US dollar as the greenback comes under pressure on two fronts.  Firstly, the unprecedented volatility in world stock markets has largely subsided for now, which means the "wall of money" that had been heading back into the US currency has slowed, leaving USD vulnerable as investor risk appetite slowly recovers. 

Secondly, the US Federal Reserve cut interest rates in a widely expected move last night, but the scale of the cut was a surprise, with rates slashed from 1% to between zero and 0.25%.  That makes the dollar a highly unattractive investment in yield terms, even against the pound which currently offers 2%.  The Euro has naturally been the biggest beneficiary of the move, rising 4.3% against the dollar since last night's announcement. 

  Meanwhile, sterling plunged again today after it was revealed that Bank of England policy makers considered even larger interest rate cuts than the 1% delivered on December 4th.  That puts the market on alert for another cut on January 20th.

           

Currency Forecast - Sterling Vs. American Dollar 29th November 2008

  Sterling has made solid progress this week as global stock markets rebound, undermining the support that the US currency has enjoyed for the last few weeks.  The dollar fell against most other currencies as investor risk aversion starts to diminish, causing a flow of funds away from the "safe haven" offered by USD, and back into currencies like sterling and some of the high yielders and emerging market assets.  Taking as a basis the fact that USD has benefited so markedly from the financial turmoil, it would seem logical to assume a weaker dollar as long as stock markets remain stable or continue to make gains. 

  The Bank of England are widely expected to cut interest rates again next week, with some analysts predicting a cut of 0.75%, bringing rates down to 2.25%.  The US Federal Reserve meet on December 16th.

   

Currency Forecast - Sterling Vs. American Dollar 18th November 2008

  Sterling has declined to new six year lows against the dollar over the last week after gloomy comments from Bank of England officials and an increasing expectation that interest rates will be cut again in the coming months.  Markets initially reacted positively to the surprise 1.5% cut, interpreting the move as decisive, and also likely to keep further cuts on the back burner.  However, mounting speculation of further monetary easing weighed heavily on the pound last week, which fell to new all time lows against the Euro, and lost ground against a resurgent greenback amid renewed stock market weakness which is helping the dollar remain firm.

   

Currency Forecast - Sterling Vs. American Dollar 6th November 2008

  The Bank of England are widely expected to cut interest rates by 0.5% today, with some analysts calling for a larger 0.75% cut.  However, sterling has been holding up against the dollar as global stock markets rebound from the the severe sell off in October.  During the period of extreme risk aversion investors sold high yielding currencies and returned money to the US dollar, fueling a massive rally in the US currency that may appear unjustified considering the fundamentals for the US economy.  However, as markets return to some semblance of "normality" we have seen the dollar fall, and this trend could continue as long as stock markets remain stable and we don't see a return to last month's panic.  If the Bank of England cut by 0.5% today we could even see sterling rally in relief that a larger cut was not made.

   

Currency Forecast - Sterling Vs. American Dollar 23rd October 2008

  The US dollar has continued to defy gravity over the last week, rallying strongly against both sterling and the euro while stock markets remain volatile and undecided over whether central bank actions will be enough to stave off a global recession.  Gloomy comments from Mervyn King earlier in the week did not help sterling, but the overwhelming appreciation of the US currency can only be attributed to the "safe haven" status the greenback still enjoys as the world's largest reserve currency. 

   

Currency Forecast - Sterling Vs. American Dollar 14th October 2008

  After action by both the Bank of England and European Central Banks in the last few days, sterling (and to a lesser extent the Euro) is finding  some support and making gains against the US dollar.  During the first phase of the crisis the dollar surged as investors anticipated quick action from the US administration, and the market attributed a premium to the dollar due to a lack of global liquidity.  Despite a large part of the trouble having originated in the US, the greenback benefited in the short term as banks hoarded cash, much of which is held in the world's largest reserve currency (USD).  However, we are now seeing a respite from the panic that gripped markets last week, with the Dow Jones stock index putting in a near 1,000 point gain last night, the largest on record.  The dollar is dropping back, and high yielding currencies are also in rally mode, having suffered massive losses last week.  Things are starting to look a little more rational !

   

Currency Forecast - Sterling Vs. American Dollar 29th September 2008

  The dollar has gained this against sterling and the euro this morning after the US administration published details of the $700bn rescue package that has been the subject of much wrangling over the last week.  Also weighing on the pound and euro are new signs that the banking crisis is hitting Europe after Bradford and Bingley PLC was nationalized and Dutch-Belgian bank Fortis had to be rescued with EUR 11.2bn of funding from the governments of Belgium, Holland and Luxembourg. 

  Looking at the US again, the dollar was under pressure after the proposed financial bail out was initially suggested ten days ago, falling as investors priced in a higher national debt and the extra associated risks of holding the currency.  However, last night's announcement contained some concessions, suggesting that only $250bn would be deployed initially, and there would be two oversight panels to safeguard the process.  Also helping sentiment were other clauses allowing the tax payer to potentially benefit if the so called "toxic" mortgage assets being acquired by the government actually produce income or rise in value over the next five years.

  All in all this morning, we are seeing mild dollar strength, but severe weakness in Sterling and Euro markets.   That leaves GBPUSD and EURUSD pairs sharply lower, and GBPEUR relatively unchanged.  Other dollar crosses like GBPJPY are also unchanged, showing that this morning's moves are more related to Euro and Sterling banking sector woes.

   

Currency Forecast - Sterling Vs. American Dollar 22nd September 2008

  Last week's financial market turmoil has driven some large moves in the currency markets.  The dollar fell dramatically as it became clear that Lehman Brothers were in trouble, and continued to fall even when stock markets were rebounding sharply late last week.  Stocks had been in freefall until the US treasury announced emergency measures to protect banks and other financial institutions from toxic mortgage debt by forming a government fund to absorb the riskiest assets and thereby safeguard banks and restore confidence. 

Despite the moves being greeted with relief in the wider financial markets, the US currency drew little support, as the proposed bail out will involve increasing the national debt to the tune of $1 trillion (by 6.6%), bringing the focus back onto the huge budget and current account deficit, and causing investors to reassess the risk of holding the currency.  In effect, the US Treasury have been forced to make a choice between the economy, and the dollar, chosing to protect the former.  Recent gains for the greenback came skidding to a halt as soon as the crisis emerged, and since then the dollar has lost 4.5% against the Euro, and 5.5% against the pound.

 

Currency Forecast - Sterling Vs. American Dollar 26th August 2008

  Sterling has suffered a dramatic decline against the US dollar over the last few weeks.  Initially sparked by a long overdue correction in oil prices which peaked in mid July, the dollar rallied furiously through early August, and continues to break new highs while oil has traded broadly sideways over the last two weeks.  The falls in GBP/USD have been compounded by new recession fears in the UK, prompted by a gloomy economic outlook from the Bank of England in its quarterly update two weeks ago. 

Governor Mervyn King emphasized the risks to growth over and above the ever present inflation threat, giving market participants the impression that the next move for UK interest rates will be down.  Meanwhile, having slashed interest rates aggressively during the emergence of the credit crisis last year, US Federal Reserve chairman Ben Bernanke is now making more hawkish comments indicating a possible interest rate hike if inflation remains at elevated levels.  This is also helping to bolster the dollar.

 

Currency Forecast - Sterling Vs. American Dollar 8th August 2008

  The dollar has rallied sharply this week despite the Federal Reserve holding interest rates steady at the current low level of 2%.  The Bank of England also kept rates on hold yesterday.  Sharp falls in commodity prices are giving the US currency a tailwind.

                                                                                       

Currency Forecast - Sterling Vs. American Dollar 4th July 2008

 The dollar has been rallying strongly over the past week after a surprisingly positive measure of US consumer confidence, and jobs market data that confirmed a softer decline since the spring.  Despite news of the unemployment rate rising to 5.7% in July the dollar rallied as traders increased bets on the Federal Reserve maintaining the current low interest rate of 2%. 

US policy makers cut interest rates aggressively in 2007 in order to combat the credit crunch, but investors had been expecting this trend to reverse soon due to spiraling inflation.  However, last week's jobs data showed average weekly earnings only grew 2.8% in the year to July, failing to keep pace with inflation.  This leaves the Fed' more breathing space to hold rates low in an attempt to keep the economy moving.  The Federal Reserve meet on Tuesday evening at 19:15 and are widely expected to keep rates on hold.  The tone of the accompanying statement may give clues to future policy.

  The Bank of England meet on Thursday, and again, we are expecting interest rates to remain unchanged at 5%. 

   

Currency Forecast - Sterling Vs. American Dollar 21st July 2008

  After making the first close above 2.0000 since March there was reason for cautious optimism last week, but the impressive rally has unraveled over the last few sessions as the dollar rallied in response to a strong bounce in US stock markets and an equally dramatic correction in oil prices.  This leaves the technical outlook on shaky ground heading into the new week, with no strong bias in either direction.  Buyers of the dollar should be extremely cautious and perhaps consider locking in the recent gains.

   

Currency Forecast - Sterling Vs. American Dollar 11th July 2008

  Sterling made little reaction to yesterday's Bank of England meeting, with policy makers holding interest rates steady at 5% as expected.  This afternoon however, the US dollar has weakened dramatically, driven by a combination of factors including a resurgent oil price, tensions with Iran and Nigeria and another sharp fall in the US stock market, which is now trading over 10% down since early June.  Gold is also spiking higher on renewed inflation concerns, breaking through key resistance at $950 per ounce.

   

Currency Forecast - Sterling Vs. American Dollar 7th July 2008

  The Bank of England are meeting this Thursday, but are widely expected to hold interest rates steady at 5%.  Rising inflation is balanced against a weakening economy and fears of further falls in house prices, making a particularly hard balancing act for the Monetary Policy Committee.

   

Currency Forecast - Sterling Vs. American Dollar 27th June 2008

  The dollar fell to a seven week low against sterling on Wednesday after the Federal Reserve kept interest rates on hold.  This was widely expected, but more surprising was the tone of the accompanying statement which was not as biased toward raising rates as most market watchers had been expecting.  This led traders to withdraw support for the US currency, which fell on the day, and continued to fall sharply yesterday as US stock markets plunged.

 News this morning confirmed that UK first quarter growth was revised lower to just 0.3% from 0.5% previously stated.  The Office for National Statistics says this brings the annual growth rate down from 2.5% to 2.3%.  Sterling initially dipped on the announcement at 09:30, but has since erased the losses and is trading in positive territory in early afternoon trade.

   

Currency Forecast - Sterling Vs. American Dollar 25th June 2008

  Sterling/dollar has settled into a range over the last couple of days, and all eyes will be on this evening's Federal Reserve meeting.  Speculation that US policy makers will raise interest rates has diminished, and the widely expected outcome if for no change.  However, the tone and language of the accompanying statement should give the market some guidance as to when to expect a rate hike.  With inflation now seen as a more present threat than that of low growth, there is a clear bias toward monetary tightening in the months ahead.  This prospect has helped to support the dollar to some extent, making it difficult for sterling to make sustained gains.

   

Currency Forecast - Sterling Vs. American Dollar 19th June 2008

  Sterling rallied sharply today after data showed May retail sales rising by 3.5% on the month, much better than the 0.1% decline expected by analysts.  The pound rallied across the board, gaining nearly 0.8% against the dollar, reversing the week's earlier losses that came as a result of alarmingly high inflation data.

   

Currency Forecast - Sterling Vs. American Dollar 12th June 2008

  Sterling rallied earlier this week after inflation figures showed producer prices rising at the fastest pace in twenty years, adding to pressure on the Bank of England to keep interest rates steady at 5%.  However, growing optimism among US policy makers has helped the US dollar bounce back, rising over 3% against the Euro and 1.5% against the pound since Monday.  Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson have both made dollar supportive comments in recent days.

   

Currency Forecast - Sterling Vs. American Dollar 5th June 2008

   The Bank of England held interest rates steady at 5% today, and the European Central Bank also made no change to their 4% rate.  Both outcomes were widely expected, but the market took direction from the ECB press conference in which central bank governor Jean Claude Trichet warned that interest rates may have to rise as the bank is on a "heightened state of alert" over rising inflation.  In other data, weekly US jobless claims figures showed an unexpected 17,000 drop in claims.  The dollar failed to benefit as the ECB comments overshadowed the market, driving the Euro sharply higher, and also triggering a broader move away from the US dollar and toward other currencies whose interest rates are likely to remain static or head higher over the coming months. 

   

Currency Forecast - Sterling Vs. American Dollar 28th May 2008

  Weak housing data on both sides of the Atlantic has been the focus this week.  Sterling has performed well since bouncing off our key technical support level around 1.9338-63 earlier this month.  The rally appears to have run out of steam in the short term, with the pound finding resistance around 1.9850.  The market has reacted negatively from around this level three times over the last few days.  A strong rally early this morning has also been rebuffed, leaving sterling vulnerable to further downside in the short term.

   

Currency Forecast - Sterling Vs. American Dollar 12th May 2008

  Sterling fell back last week despite the Bank of England keeping interest rates unchanged at 5%.  Any initial enthusiasm for the currency soon waned as traders turned attentions to the June meeting, which is now strongly expected to result in a 0.25% rate cut.  Meanwhile, the Federal Reserve are perceived as moving toward equilibrium in their monetary policy stance, giving the dollar some support after the long string of rate cuts.

   

Currency Forecast - Sterling Vs. American Dollar 2nd May 2008

    The dollar rallied to 1.9620 earlier this week before the Federal Reserve cut interest rates by 0.25% to 2.0% on Wednesday.  Market watchers were divided on whether there would be a cut or not, setting the dollar up for a fall off the back of the announcement.  With UK interest rates now offering a 3% yield advantage (Bank of England rate is 5%), investors may start to favor sterling, so we remain cautiously optimistic in the short term.  The recent moves by the Bank of England to help calm credit markets have also provided some relief for the pound, which has rallied against most other major currencies this week.  However, sentiment toward the US currency has also improved after the Federal Reserve signaled that Wednesday's rate cut may be the last for some time. 

   

Currency Forecast - Sterling Vs. American Dollar 24th April 2008

  Sterling is still struggling to make consistent headway against the dollar this week.  Initial reports of the Bank of England's package to help ailing banks were met with sterling strength last week, but weakness once the plans were finalized on Monday.  The plan is to allow banks to swap their mortgage backed securities for government bonds, a move designed to sure up confidence among the banks and kick start interbank lending.  Ratings agency Fitch says the plans are a relatively safe bet for the central bank, as any mortgage backed collateral will be subject to stringent criteria in order to be allowable under the scheme.

  The minutes from the April Bank of England meeting were released yesterday, showing that two of the nine member committee voted for no change in interest rates; but one member voted for a half percent rate cut, making this the first 3 way vote since May 2006.  Sterling rallied on the release, only to give back the gains and close 1% lower on the day.

   

Currency Forecast - Sterling Vs. American Dollar 18th April 2008

  The dollar fell yesterday as weak manufacturing and jobs data added to fears of a possible recession in the world's largest economy.  The Euro made a new all time high although it slipped back in afternoon trade after comments from Luxembourg's finance minister describing the recent strength of the currency as "undesirable".  Meanwhile, sterling made solid gains, exacerbated by the slight Euro weakness and also by news of a £13.7bn liquidity injection by the Bank of England, and new initiatives from the government to provide additional breathing space to mortgage lenders.

   

Currency Forecast - Sterling Vs. American Dollar 14th April 2008

  Recent volatility in currency markets drew comments from this weekend's G7 meeting.  Analysts were surprised by comments raising concern over "sharp fluctuations on major currencies, and....possible implications for economic and financial stability".  No new policy measures were announced, and there is some doubt whether the G7 would be able to formulate a plan to address the situation.  The Euro opened lower this morning as investors saw a higher risk of intervention. 

  The credit crisis has presented an interruption in terms of the GBP/USD rate going higher over the last few months, simply because the UK has shared the high levels of mortgage related problems that first emerged in US markets last year, leaving both currencies highly vulnerable.  The major beneficiary has been the Euro, which has surged around 8% against both the dollar and the pound so far this year. 

  However, the fundamental building blocks of our weak dollar case remain valid, and should in our view reassert themselves over the coming year.  US interest rates have plunged to just 2.25%, leaving sterling with a 2.75% yield advantage.  This time last year, UK and US rates were almost in alignment.  In the short term this important factor has been disregarded as investors shun currencies associated with the credit squeeze and pile into the Euro, which offers a 4% yield, lower exposure to sub prime, and a hawkish central bank who appear determined to hold interest rates steady even while the Euro surges to new highs almost daily.  This inflation fighting policy is in sharp contrast to the US Federal Reserve, who are more concerned about the domestic growth outlook. 

  Despite the credit crisis being described by Alistair Darling as "the biggest economic shock" since the Great Depression (!?), currency market focus will inevitably drift back toward more basic measures over the next year.  Growth, interest rates and inflation.  US growth has slowed sharply, and may even be tipping toward recession.  Interest rates cannot go much lower, even allowing for a repeat of the 2000/2001 slowdown in which the Fed' lowered rates to just 1%.  With oil trading near all time highs around $110 as I type, and world food prices also rising sharply (sparking riots in developing countries), it is hard to see how the Fed' can responsibly continue to provide such cheap money.  As one Fed' official said recently, they are facing a "difficult situation".

  Meanwhile, the Bank of England has only cut interest rates to 5% in the current cycle, leaving room for more easing, which appears likely in the short term.  If UK interest rates remain close to current levels, and the housing market doesn't crash, sterling should return to asset allocators' attention as a reasonably stable currency with a decent yield.

   

Currency Forecast - Sterling Vs. American Dollar 9th April 2008

  Sterling fell sharply yesterday after a Halifax house price survey revealed a 2.5% fall in March, much more than the 0.4% decline expected, and the largest drop since 1992.  This brings the annual pace of house price growth right down to 1.1%, and increases the chances of an interest rate cut from the Bank of England tomorrow (Thursday).  Gordon Brown made some blunt remarks to the BBC yesterday, saying that interest rates can be cut, because inflation is low.  In fact, inflation remains well above the 2% target rate that Brown set when he made the Bank of England independent in 1997.

   

Currency Forecast - Sterling Vs. American Dollar 9th April 2008

  Sterling fell sharply yesterday after a Halifax house price survey revealed a 2.5% fall in March, much more than the 0.4% decline expected, and the largest drop since 1992.  This brings the annual pace of house price growth right down to 1.1%, and increases the chances of an interest rate cut from the Bank of England tomorrow (Thursday).  Gordon Brown made some blunt remarks to the BBC yesterday, saying that interest rates can be cut, because inflation is low.  In fact, inflation remains well above the 2% target rate that Brown set when he made the Bank of England independent in 1997.

   

Currency Forecast - Sterling Vs. American Dollar 3rd March 2008

  The Sterling/Dollar rate has been erratic the last few weeks, as sentiment toward both currencies is very weak.  The US currency is suffering from lower demand due to a falling interest yield (US rates are now 2.25% and expected to head lower still) and continued fears over the health of the economy and the stability of the banking sector.  Meanwhile, the pound is also highly prone to banking related concerns as the UK mortgage market shares similar characteristics with the US.  In summary, both currencies have been sold in equal measure, in favour of the Euro and Yen over the last few months, leaving the GBP/USD rate lacking clear direction.

  Next Thursday's Bank of England meeting is expected to result in a quarter percent interest rate cut.  Bank of England head of markets, Paul Tucker said in a speech yesterday "the broad policy strategy is to offset some but not all of the adverse shock to demand from tighter credit conditions".  In other words, the central bank will provide some relief to the slowing economy and shaky housing outlook, but will also remain mindful of rising inflationary pressures.  A report this week showed producer prices rising to the highest level in nine years, an indication that manufacturers are passing higher costs to the consumer, stoking inflation.

  Tomorrow's US non-farm payrolls report (13:30) is always an important release for the dollar.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Currency Forecast - Sterling Vs. American Dollar 27th March 2008

  Sterling bucked last week's break below 2.0000 to recover back above this level on Tuesday.  Comments from Bank of England governor Mervyn King knocked the pound early Wednesday on suggestions that the monetary policy committee are predisposed to further rate cuts.  However, the pound regained its poise to end the session in positive territory.  Further gains this morning help to cement Sterling's technical dominance over the US currency.  Last week's dip took us below the key psychological 2 for 1 mark on a closing basis, but we bounced just short of the early March low at 1.9718.  This means the uptrend that began in late February is still intact, and we could be heading for further gains.  The next significant resistance level is the recent high at 2.0398.  A close above there would open the way to 2.0577 and then 2.0833, both levels that were sharply rejected as we traded lower through Nov'/Dec' 2007.

   

Currency Forecast - Sterling Vs. American Dollar 19th March 2008

  The Federal Reserve cut interest rates by 0.75% last night, leaving the benchmark lending rate at 2.25%, the lowest for any major economy except for Japan.  Some traders had been expecting a full 1% cut, so the dollar rallied sharply on the announcement, dragging the GBP/USD rate down 2 cents in just 2 hours.  This leaves a major new resistance level at 2.0275 (the pre Fed' high).  The dollar's rally however should not be given too much attention unless we see a close below the key 2.0000 level.  The short term trend remains up, and with sentiment toward the sterling already hitting bearish extremes any recovery in the pound's fortunes could see us trade higher again.  The dollar remains highly vulnerable to any data confirming a consumer downturn.  By cutting interest rates in order to stabilize financial/credit markets, the resulting weak dollar is driving fuel and commodity prices (priced in dollars) ever higher, which will impact consumers and corporations, offsetting any benefit expected from the fiscal stimulus package that arrives in May.

   

Currency Forecast - Sterling Vs. American Dollar 19th March 2008

  The Federal Reserve cut interest rates by 0.75% last night, leaving the benchmark lending rate at 2.25%, the lowest for any major economy except for Japan.  Some traders had been expecting a full 1% cut, so the dollar rallied sharply on the announcement, dragging the GBP/USD rate down 2 cents in just 2 hours.  This leaves a major new resistance level at 2.0275 (the pre Fed' high).  The dollar's rally however should not be given too much attention unless we see a close below the key 2.0000 level.  The short term trend remains up, and with sentiment toward the sterling already hitting bearish extremes any recovery in the pound's fortunes could see us trade higher again.  The dollar remains highly vulnerable to any data confirming a consumer downturn.  By cutting interest rates in order to stabilize financial/credit markets, the resulting weak dollar is driving fuel and commodity prices (priced in dollars) ever higher, which will impact consumers and corporations, offsetting any benefit expected from the fiscal stimulus package that arrives in May.

   

Currency Forecast - Sterling Vs. American Dollar 17th March 2008

  The news last night that JP Morgan is to acquire ailing Bear Stearns for just $2 per share (compared to Friday's closing price of $30) sent shockwaves through the financial system and pushed the US dollar to a new all time low against the Euro and a 12 year low against the Yen.  Because Sterling is perceived as suffering from similar problems to the US currency (ie..a banking system with high exposure to sub-prime mortgage debt) and is more susceptible than other currencies to dislocations within the worlds' credit markets. The pound resumed trading relatively unchanged against the dollar, and has since lost ground, while the Euro surges to new all time highs against both currencies.

  Also weighing on sterling this morning was news that the Bank of England intervened in the credit markets to provide £5bn of short term liquidity.  This hit an already jittery sterling market, which was already feeling the effects of last night's US news. 

   

Currency Forecast - Sterling Vs. American Dollar 12th March 2008

  After hitting a 3 month low against sterling and a new all time low against the Euro yesterday morning, the dollar rebounded in afternoon trade as the US Federal Reserve announced a joint initiative with other central banks to inject fresh liquidity into struggling credit markets.  The $200Bn package immediately cooled expectations of a large interest rate cut from the Fed' on March 18th, leading to sharp gains for the dollar, which ended the day unchanged against both the Euro and Pound, having been down nearly 1% earlier in the day.

  Crucially for Sterling, we are still trading above the key 2.0000 level, and the support just below here around 1.9960-75.  A close below the latter would signal a serious deterioration from a technical perspective.  Having firmed somewhat from the day's lows, we are still maintaining a positive outlook for Sterling as long as we remain above these key levels.

   

Currency Forecast - Sterling Vs. American Dollar 6th March 2008

  The US dollar has smupled to a new all time low against the euro, and is once against testing the 2 for 1 level against sterling. 

  Both the Bank of England and the European Central Bank held interest rates unchanged as expected today.

   

Currency Forecast - Sterling Vs. American Dollar 5th March 2008

  The Sterling/US dollar rate is still hovering below the crucial resistance level 1.9960-75.  The US currency has once again been hitting all time lows against the Euro this week, but sentiment toward the pound is also poor, leaving the GBPUSD rate relatively unchanged.  Sterling fell early this morning but has recovered most of the losses after a report released at 09:30 showed unexpected growth in the UK services sector during February.  Analysts had expected a slight decline. 

  The Bank of England's March interest rate announcement is due tomorrow at noon.  We do not expect any change in the current rate of 5.25%.

  Data on US Jobless claims and New Homes Sales are released Thursday afternoon (13:30 and 15:00), followed by further employment data on Friday (non-farm payrolls at 13:30).

   

Currency Forecast - Sterling Vs. American Dollar 27th February 2008

  The US dollar plunged yesterday ahead of the Federal Reserve chairman's semi annual speech to Congress today.  Markets are speculating that further interest rate cuts will be signaled, and futures markets are indicating a 96% probability of a 50 basis point cut on March 18th, sending US interest rates to 2.5%. 

   

Currency Forecast - Sterling Vs. American Dollar 18th February 2008

  Sterling has reversed much of last week's gains, and continues to slide back towards the recent lows at 1.9334/1.9388.  Both of these levels represent potential support, but a close below 1.9334 would be a negative signal from a technical viewpoint.  With markets now expecting another substantial interest rate cut in the US in March, it is surprising that the dollar is still dominating sterling. 

Last week's Bank of England inflation report suggests limited scope for further UK rate cuts, which should in turn help the pound maintain some strength against the dollar.  However, Sterling has been plagued by banking sector woes, firstly from fears of likely assets write downs related to derivative exposures, and this morning from the news that Northern Rock will be nationalized.  These stories are keeping the pound of the back foot for now, and we will have to see the reaction at the crucial 1.9334 support before drawing any new conclusions regarding short term direction.  In the meantime, it would take a break above last week's high at 1.9738 to revive the positive momentum and open the way to the next key level at 1.9960 (January high).

 

Currency Forecast - Sterling Vs. American Dollar 11th February 2008

  Sterling dipped back toward the January lows last week following the widely expected 0.25% rate cut by the Bank of England.  Today's Economic Data this morning from the Office for National Statistics showed a sharp rise in factory gate prices, (a measure of inflation focusing on manufactured goods) rose 5.7% on the year to January, beating December's 5.0% gain.  This is the fastest rate of price inflation since the early nineties, and represents a major headache for the Bank of England, who will find it difficult to cut interest rates in the face of such strong inflation data.  The Bank of England's quarterly inflation report on Wednesday should provide clearer guidance as to likely central bank policy over the next few months.

   

Currency Forecast - Sterling Vs. American Dollar 7th February 2008

  The Bank of England cut interest rates by 0.25% today in a widely expected move.  Sterling initially rallied on the announcement (as some traders had feared a larger 0.5% cut), but then fell sharply, hitting new lows for February.  We are now fast approaching the January lows at 1.9334.  The reaction here will be crucial in determining direction over the next few weeks.  Having made such a strong reversal from this level in January, it should provide some support again now, so a close below here would be a negative signal, opening the way to further losses and the next major support at 1.9190.

   

Currency Forecast - Sterling Vs. American Dollar 31st January 2008

  The US Federal Reserve cut interest rates last night for the second time in two weeks.  The move was already widely expected, so the market reaction was somewhat muted, and the dollar remains on the back foot for now.  Sterling is still trading close to its recent highs, which looks positive from a technical perspective.  The next major resistance level is 2.0102. 

   

Currency Forecast - Sterling Vs. American Dollar 28th January 2008

  The recent weakness in sterling has many concerned that the best time for hedging US dollar exposure may have passed with the 2.10+ highs in late 2007.  The long term chart below helps to put the current situation into perspective.  The long term uptrend is still intact, and the last few weeks' price action appears as little more than a blip.  Of course, there is no guarantee that we aren't at the start of a long term downtrend, but it is way too early to make that assumption. 

  In our last long term update we stated that the fundamental factors that led us to take a negative view of the dollar back in November 2005 are still in place.  That is still the case today, and the only major difference in the economic outlook is the prospect of a global slowdown led by the US economy.  The interest rate cycle has turned (to down!), and so far the US have cut by 1.75% while the Bank of England have cut by just 0.25%.  The pound's interest rate advantage has grown from 0.5% to 2% over the last few months, which, all other things being equal (which of course they are not!), should arguably make sterling relatively more attractive than the dollar.   

   

"...we should trade higher over the next few days" - 23rd January

  So far so good.  The surprise cut by the Federal Reserve sent the dollar reeling, and the GBP/USD rate has surged another 2% since our last update.  This week is a crucial one with the official Fed' meeting culminating in another interest rate announcement on Wednesday evening, and an important US employment report on Friday.  Analysts had been expecting another 0.5% cut from the Fed' following the 0.75% last Tuesday.  However, the size of last week's move has resulted in most market watchers downgrading their expectations to just 0.25% from this week's meeting.  Fourth quarter GDP figures are also released on Wednesday at 13:30, and are expected to show a slowing growth rate.

   

Currency Forecast - Sterling Vs. American Dollar 23rd January 2008

  The US Federal Reserve cut interest rates by 0.75% yesterday in a surprise move ahead of the official monthly meeting on January 30th, which is widely expected to result in another cut.  The Fed funds rate now stands at 3.5% compared to 5.5% for sterling. 

  The initial reaction to the announcement was a logical fall in the dollar as interest rate expectations dropped sharply.  The yield on the US two year note is now below 2%, implying that market expectations are for a cycle low below 2% for US interest rates.

   

Currency Forecast - Sterling Vs. American Dollar 21st January 2008

  Sterling is trading up against most other currencies this afternoon, but is making new lows against the US dollar.  The US currency has rallied over the last week as investors  bet that the aggressive cycle of interest rate cuts by the Federal Reserve will help spur growth and stimulate the economy.  This sentiment is outweiging the fact that lower interest rates may lessen demand for the currency.  President Bush on Friday unveiled a $145 billion package of tax breaks and other measures designed to prevent a recession.

  Meanwhile, sterling took a backwards step on Friday after a report showed a sharp decline in retails sales during December.  Sales fell 0.4% against analysts expectations of a 0.2% gain.  The pound was duly punished, but has since recovered its losses against most currencies, the US dollar being the notable exception. 

  The GBP/USD rate is hitting new ten month lows today, breaking below the recent lows at 1.9480.  This is a negative technical development, and a close below 1.9480 this evening would increase the chances of a further slide toward the next big support level at 1.9190.  This was the March 2007 low.

   

Currency Forecast - Sterling Vs. American Dollar 14th January 2008

  Measured against a trade weighted basket of currencies, Sterling has weakened more than any other major currency in the past 12 months, falling 9% compared to 8.4% against the US dollar.  Part of the reason for the dramatic falls has been a growing expectation that the Bank of England will cut interest rates by 0.5%-0.75% through 2008 in response to a slowing economy and moderating inflation risks. 

However, the clouds building over the UK economy are similar to those in the US, with high personal debt and overvalued housing markets leading the role call.  With the US Federal Reserve cutting interest rates faster than the Bank of England, it could be argued that sterling's fall against the dollar is over done.  Sterling still enjoys the same yield advantage over the US currency as 6 months ago (1.25%), and with most analysts in agreement that the Fed' will cut by another 0.5% at the next meeting, this yield gap will actually increase.

  The week ahead is packed with inflation data from both sides of the pond.  We start with UK producer prices this morning, and consumer prices tomorrow.  Forecasters are expecting headline inflation at 2.1%, which is only slightly above the Bank of England's 2.0% target, allowing them some scope for rate cuts.  A figure much above 2.1% should therefore see sterling rally.

   

Currency Forecast - Sterling Vs. American Dollar 10th January 2008

  Sterling is touching new lows this morning ahead of today's crucial Bank of England meeting.  Analysts are divided over whether we will see a second consecutive interest rate cut emerge from the announcement at noon today.  Clear signs of a slowing economy were compounded by news of poor trading figures from Marks and Spencer yesterday, and a warning about the retails environment through the remainder of 2008. 

  On balance a rate cut of 0.25% looks very likely, and sterling is already braced for such an outcome having fallen through the major support zone at 1.9650 yesterday.  The GBP/USD rate is now trading at ten month lows.  Unless we see some positive progress soon, the long term uptrend will be thrown into doubt.

  The European Central Bank also meet this afternoon but are widely expected to keep rates on hold at 4%.  The tone of the accompanying statement will be closely watched for signs of any softening in their previously hawkish stance against inflation.

   

Currency Forecast - Sterling Vs. American Dollar 3rd January 2008

  Sterling's dramatic decline continued over the New year break, as prospects for further interest rate cuts increased after the Bank of England's Monetary Policy Committee voted unanimously in December to cut rates to 5.5%.  Weak data from the Chartered Institute of Purchasing and Supply also points towards a larger economic slowdown than previously thought, so tomorrow's service sector figures will be another important indicator for whether the MPC will cut interest rates at the January 10th meeting.

  Meanwhile, the Federal Reserve is still in rate cutting mode according to interest rate futures, which imply further rate cuts in the pipeline for 2008.  This should ensure that Sterling's interest rate advantage is maintained at or around 1.25%.  The dollar's rebound over the last few weeks has run its course against both the Euro and Yen, which are now rising sharply against the US currency.  Sterling's weakness appears excessive given the similar economic outlook in the US and UK.  Having turned negative on the Sterling/Dollar rate in early November, we are now looking for support to kick in around current levels.  The 1.9653 level is of particular significance having been the August 2007 low.  Clients with dollar requirements who are hoping for an improvement should consider placing a stop order below this level * to protect against further weakness.

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