pound sterling outlook

"As euro zone problems persist, we see risks that we haven’t seen the worst yet against the Aussie and the Kiwi despite them being overvalued by around 30 pct" - Andy Scott at HiFX.


The pound sterling (Currency:GBP) is this morning lower against a host of currencies in line with persistent fears that the UKs Bank of England will get increasingly easy on monetary policy:

The pound euro exchange rate is 0.16 pct lower than at Monday's closing level at 12789 at 10 AM in London.

The pound dollar exchange rate is 0.15 pct in the red at 1.5687.

The pound to Australian dollar currency pairing is 0.23 pct down at 1.4919.


Moody's has reaffirmed its negative outlook on the UK's credit rating, according to Dow Jones.

The ratings agency also cut its growth forecasts for the UK to 0.4 pct for this year and 1.8 pct for next year.

“The U.K.’s Aaa sovereign rating continues to be characterised by a large, diversified and highly competitive economy, a particularly flexible labor market, and a banking sector that compares favorably to peers in the euro area,” Moody’s said.

“The negative outlook in part reflects concerns about the U.K.’s macro-economic outlook for the next few years.”

The key issues for the U.K. economy include a reduction in its “fiscal flexibility” as public sector deficit and debt remain “considerable”, Moody’s said. The weaker economic outlook and ongoing risks from the euro-zone crisis were also highlighted by the ratings agency.

Andy Scott, premier account manager at foreign currency brokers HiFX says:
 
"The economy’s performance is worrying given that we’ve only managed two quarters of growth in the last seven and the figures released last week seem to paint a worsening picture.

"Despite this, the U.K. has been considered somewhat of a safe place to have your money if you consider that government borrowing costs are at record lows. Sterling has also performed quite well this year, at least against some currencies and this is important.

"When you compare the outlook for the U.K. with Europe and the U.S. there isn’t a huge amount to separate them though Europe’s biggest economy (Germany) is growing at the moment as is the U.S.

"Expectations that monetary policy will be eased further by the Federal Reserve, ECB and the BoE should keep Sterling supported against the Dollar and the Euro. Persistent weakness in the UK economy though would lead us to expect the Pound to struggle to break the resistance levels of 1.5750 against the Dollar and 1.30 against the Euro.
 
“Where we continue to see problems for Sterling is against the high yielding Australian and New Zealand Dollars. Both currencies offer significantly better economic back drops, largely due to china and have significantly lower debt to GDP ratios. After a brief rally having been at multi-decade lows against the two commodity based currencies recently the Pound is back on the slide against both.

"As euro zone problems persist, we see risks that we haven’t seen the worst yet against the Aussie and the Kiwi despite them being overvalued by around 30%.”