Outlook Glum For The UK

The pound had a mixed day yesterday, with initial losses against most European currencies (many of which tend to track the single currency euro, like the Swiss Franc and Scandinavian currencies), following the release of Bank of England minutes. The minutes highlighted that inflation worries were a key factor in members’ thinking, with expectations for inflation to increase over 2013. This gives less options for the bank to use quantitative easing for stimulating the economy, so although QE in itself is negative for the pound, the long prospect of slow growth and high inflation is bad news for the UK and as such the pound weighed.

Against the commodity currencies, the pound fared better as US worries regards the fiscal cliff and the imminent tax rises and spending cuts due early next year, weighed on investor sentiment. The US dollar is broadly weak for the reasons just mentioned, but the more risky currencies like Australian, New Zealand and Canadian dollars have all been dumped as risk averse investors hold back.

Instead, favour is with the single currency, riding high off recent ECB announcements over EU banking. We have seen the Euro gain against most currencies lately, including most notably the US dollar and the pound. Rates on sterling/euro are now at near 3 month lows with little likelihood of the trend bucking.

We have retail sales today which could bring some light relief for anyone looking to send money to Europe before the year end and also final reading for Q3 GDP on Friday. The last reading brought no changes and the expectation is for the same on Friday so it’s unlikely to move the markets much in sterling’s favour unless we see a big change up or down.

We’re into the last few trading days of the year so anyone with a requirement coming up, whether a current client or not, don’t delay in contacting us for some friendly guidance on your exchange.