Sterling set for a resurgence as attention shifts elsewhere

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By Jason Gaywood, director, corporate premier services at foreign currency exchange brokers HiFX:

“Since the very beginning of 2013 the British Pound has found itself under relentless pressure as concerns about the state of UK Plc pervaded global financial markets. Disappointing data, high profile retail closures, negative comments from the outgoing BoE governor and the press and above all, the loss of the sacred AAA rating have all conspired to force sterling lower. Close to 10% has been wiped off its value against both the Euro and the US Dollar since January.

“Whilst the much publicised threat of a ‘triple dip recession’ remains, it’s likely that The Pound is likely to see at least a short-term bounce from here as focus shifts back to the massively unresolved issues both in the Eurozone and across the Atlantic.

“Recent key developments such as the inability for the Italian electorate to choose a leader and the reappearance of the dreaded ‘fiscal cliff’ in the US are almost certain to persuade dealers to reverse their winning bets against Sterling. This will manifest itself as a flurry of ‘buy’ orders for GBP. As sentiment changes, demand for The Pound will gain momentum and simple supply/demand economics will push values higher just as it forced them lower over recent weeks.

“From here, we could very well see GBP/EUR testing back towards 1.1850/1.2000 and GBP/USD up at 1.5300/1.5500 quite quickly. That is, of course, unless any new events render Sterling less attractive than its peers. Tomorrow, the Bank of England will announce whether we are to see more Quantitative Easing in the UK. Any further banknote printing (unlikely at this stage in my opinion) is likely to reverse opinion once again and see dealers scrambling to sell their recently purchased Pound notes.”