Market News Detail

Pure FX - Foreign Exchange Market Overview - February 2008

Sterling Overview

Underlying confidence has remained fragile this month with persistent unease over the financial sector.  The nine members of the Bank of England’s (BoE) Monetary Policy Committee (MPC) voted unanimously for a rate cut with one member, David Blanchflower voting for a 50 basis point reduction.  The base rate is now 5.25% and markets, for now, will continue to expect a further cut in interest rates during the second quarter. 

The latest consumer confidence data was released early and recorded a further decline to a record low of -17 from -13 the previous month. Weaker confidence will reinforce expectations of a sustained downturn in consumer spending.  Comments from MPC officials were generally mixed with Besley pointing to inflation risks while BoE Deputy Governor Gieve focused more on the growth risks.  Any sustained increase in global financial risk would tend to undermine the UK currency.

If you are concerned about exposure to the currency markets, you can eliminate that risk by fixing your exchange rate for up to two years ahead.  For more information, please contact us.

GBPEUR

The euro continues to go from strength to strength, breaking through the 1.50 level against the US dollar and hitting record highs against the pound.  Sterling has lost around 12% to the euro since early September and some economists are forecasting further losses as UK interest rates look likely to be cut whilst euro zone rates remain on hold.  For anyone selling euros and buying sterling, there has never been a better time.

GBPUSD (Cable)

With neither the pound nor dollar looking particularly strong cable (GBPUSD) has remained range bound, although very weak US consumer confidence has meant more favourable buying levels recently.  Bernanke warned that the US economy was in a weak position and warned there could be some bank failures. In this environment, markets continue to price in further interest rate cuts, which could be good news for dollar purchasers.

GBPCAD (Loonie)

As sterling has struggled to find support the CAD has rallied on the back of record oil prices which have gone beyond $100 per barrel.  Interest rates were kept on hold at 4% by the Bank of Canada (BoC), although high oil prices and the threat of another rate cut in the UK are likely to keep sterling under pressure.

GBPZAR (South African rand)

The South African rand has weakened due to concerns about growth prospects and local energy shortages, and buying levels are now as high as we have seen for 5 years.  Interest rates remained at 11% with the last move being a 50 basis point rise in December.

GBPAUD (Australian dollar)

The Australian dollar rose after Reserve Bank of Australia (RBA) increased interest rates to 7% and left the door open for further policy tightening.  The dollar is now more expensive than it has ever been and with a hawkish outlook and a lack of confidence in the UK we could see even better levels for those selling Aussie dollars.

We hope this newsletter has been useful and for further information please contact your Pure FX Currency Dealer on +44 (0) 1494 671800