The New Year hangover for the pound is yet to be shaken off as we start 2013, with memories a prosperous summer quickly fading as the reality of cleaning up after the party dawns on the UK economy.
By Luke Trevail of TorFX
Sterling has had a terrible January and lost the key trading level of above €1.20 and looks likely to tumble as news continues to casts doubts over our ability to evolve from the drudgery of the last 5 years gathers pace.
Perhaps the biggest data release came on Friday 25th January when the UK GDP figure was released. This announcement shows what growth, if any the economy posted in the last three months of 2012 and came off the back of a 0.9% boost for Q3 when the Queen’s Jubilee and Summer Olympics were taken into consideration.
The figure was always going to drop from the dizzy heights of quarter 3, but no one expected the negative 0.3% contraction of the economy and with the pound already on the back-foot this hammer blow really knocked the currency down against many pairings on the market. The technical definition of a recession remember is two quarters of negative growth so we are now half way towards a dreaded ‘triple-dip’ recession – the only economy in the world to have this unenviable claim.
FX advice to anyone who is still looking to buy into the euro from sterling should be to at least cover some of your requirement now as the move from €1.2270 on Christmas Eve to the €1.1630 on 30th Jan is not only a shock, but also financially damaging to plans for property purchases etc. If you are looking to sell the euro into the pound of course rates now are the best they have been in over 12 months.
With further woe for the pound is expected and news of a credit downgrade for the UK economy looms and I suspect that we’ve not yet seen the bottom of this market, and things will almost certainly get worse before they get any better.