Market News Detail

Pure FX - Foreign Exchange Market Overview - March 2008

Sterling Overview

It has been an interesting month and sterling remains under pressure. The Bank of England voted to keep interest rates on hold at 5.25%. This was forecast, however the minutes indicate a cut in interest rates is just around the corner. Another major factor to sterling weakness was speculation that HBOS was in a precarious financial position. HBOS shares lost significant value and the pound tumbled. Unlike with Northern Rock, the Bank of England and FSA reacted immediately to ease fears and ultimately the HBOS rumours were complete nonsense.

House price inflation data from Nationwide, Halifax and RICS shows property prices slowing down although with limited supply prices are not forecast to drop sharply. Also, employment data and retail sales are still robust with both Next and John Lewis announcing positive sales figures. This will limit the Bank of England’s ability to cut interest rates too much, providing some support for the pound.

Given the market conditions our view is for sterling to remain under pressure in the short term.  If you are concerned about exposure to the markets please contact your Currency Dealer who will be able to give you advice on the options available.

GBPEUR

With continuing lack of confidence in US financial markets the main benefactor has certainly been the euro. Whilst the US dollar remains weak investors are purchasing euros. This is having a knock on effect making the euro as expensive as it has ever been. The flip side to this is that there has never been a better time to sell euros.

GBPUSD (Cable)

US markets remain fragile and earlier this month the Federal Reserve took aggressive action by cutting interest rates 75 points to 2.25%. Confidence continues to be an issue compounded by the collapse of Bear Stearns, although positive earnings results from other investment banks has provided some dollar support. US dollar buying levels still remain favourable and with the long term forecast indicating a sharp recovery in America, there might not be a better time to purchase dollars.

GBPCAD (Loonie)

Despite record oil prices the Canadian dollar has lost value against sterling. A sharp fall in commodity prices and an interest rate cut of 50 points to 3.5% has seen the loonie come under selling pressure.

GBPZAR (South African rand)

With continued uncertainty in the global credit markets emerging currencies like the South African rand have struggled. Having said this demand for commodities remains high so when confidence returns the rand could recover these losses.

GBPAUD (Australian dollar)

The Reserve Bank of Australia (RBA) increased interest rates again by 25 points to a 12 year high of 7.25%. The dollar is now more expensive than it has ever been and with 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