Pound Sterling Outlook - Has GBP Exchange Rate Recovery Come Too Far?

Modified: Thursday, 10 July 2014 11:09 BST - Written by John Cameron

STORY LINK Pound Sterling Outlook - Has GBP Exchange Rate Recovery Come Too Far?

According to Kevin Daly, an Economist at leading investment bank Goldman Sachs, the positive performance from the Pound Sterling during recent month may now itself be a threat to the UK economy’s future prospects. Daly stated yesterday that, ‘the currency is up on a trade-weighted basis almost 10 percent in the last year. That leads us to expect that while growth will remain strong, it will moderate to some extent as the year goes through.’

The UK tender reached its strongest level against a trade-weighted basket of currencies for almost six years on Monday, but has since suffered a mini-sell off which has seen it post three red days on the trot. A lot of the positive sentiment towards the Pound has been driven by futures market predictions that the Bank of England will be the first major global central bank to raise interest rates – possibly as soon as November of this year. The latest Bank of England policy announcement, due out at 1200hrs today, is unlikely to give investors much of a clue as to the Bank’s future intentions. Any increase to the level of the UK’s Base Rate is considered massively unlikely by market participants and Britain’s central bank has stopped adding a ‘forward guidance’ element to its policy announcement. The quarterly inflation report which it publishes now fulfills this role.

Sterling-watchers may have to wait until tomorrow morning when the latest output figures for Britain’s construction sector are published in order to get a steer on the near-term prospects for Sterling. Look for a showing of above the anticipated month-on-month print of 5.6% to provide renewed support for the Pound ahead of the weekend market shutdown.

Meanwhile, the overnight Asian session brought the publication of June’s jobs data in Australia painted a mixed picture of the state of the Antipodean economy. The employment creation element of the figure printed at an above-expectations 15,900 while the overall rate of joblessness unexpectedly increased from 5.9% to 6.0%. The immediate market reaction saw the GBP/AUD exchange rate dip to a fresh near-term low of 1.8154. Given the increase in the rate of joblessness in Australia could however weigh down the Aussie Dollar in the short-to-medium term.

Other risk events of note today include this morning’s Monthly Report from the European Central Bank and this afternoon’s weekly jobs figures in the US.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: American Dollar Forecasts Australian Dollar Forecasts Daily Currency Forecasts