The un-seasonally nice weather in the UK had prompted the market to warm to comments from George Osborne and the UK Budget earlier in March leading to the pound rising to above €1.20, this was before the familiar chill of more bad news came back to stop the pound in its tracks.
By Luke Trevail of TorFX
A period of positive trading for Sterling came to an abrupt end as shock news on Wednesday morning showed a contraction in the UK economy that was greater than predicted weighing heavily on the fortunes of Sterling. The two previous estimates for the gross domestic product in Q4 2010 were surprised that the actually figure showed that the economy shrank by 0.3% rather than 0.2% first thought, and factored into the market.
It is hoped that a pickup in activity will be posted for Q1 of this year, preliminary figures are to be released this time next month, but the hand that was dealt yesterday saw a lot of Sterling’s good work crumble away following the announcement as it fell by just over 1% against the euro which is the biggest loss on a single day that we have seen in five weeks.
Further bad news in the form of Nationwide house price data, which posted an unexpected fall have underlined the problems that the UK is facing to try and kick start the economy and get the protracted ‘recovery’ a start in earnest.
For Sterling sellers, the last few days have stunted hopes of an immediate break above key levels on the euro which, as mentioned has fallen away by around 1%. Market participants can see however that with volatility entering the market once more we are likely going to see some potentially very good, but also some very bad days moving forward
News from the eurozone crisis seems to have gone suspiciously quiet through March, but the threat of this being a sleeping giant for me is absolutely something to be aware of. Talk of Portugal, Spain, Italy and Ireland feeling the same pressure that Greece did, and arguably still are experiencing will likely weigh on the European Central bank over the coming weeks. The once booming housing market in Europe is stuttering at best and as we enter the Spring, the focus on tourism and the money generated to the region will be key on whether we see more countries defaulting and seeking support from Germany, France and others.
If you have the pound to sell you can do very well still by entering into the market around €1.18, but with the Olympics around the corner and what’s expected to be a huge cash injection into the UK just when they need it most, decent prices for Euro sellers are expected not to last. Anyone in the position of wanting to repatriate funds to the UK could do well to cover at least some of their requirement soon.