Market News Detail

Pure FX - Foreign Exchange Market Overview - April 2008

Sterling Overview

Sterling has continued to struggle this month and given recent economic data it is difficult to see which sector will provide the UK currency with the support that it needs.  Interest rates were cut by 25 basis points earlier in the month with MPC voting split three ways, although so far the banks have been unwilling to pass this reduction onto consumers.  In fact many banks have withdrawn their mortgage products and instead increased their lending rates to customers.

The Bank of England has promised £50 billion to ease liquidity concerns and Gordon Brown has urged banks to reveal the true extent of their losses from the credit crunch.  He has also made a special visit to Wall Street to meet with major US banks to try and ease the global liquidity problems.

As reported by Nationwide, Halifax and RIC’s (Royal Institute of Chartered Surveyors) the UK housing market is slowing, however we feel some slowdown in the growth rate is necessary in order to prevent an even sharper correction in house prices in years to come.

As per our previous forecast we expect pressure to remain on the pound in the short-term, although please contact your Currency Dealer for a more detailed picture.

GBPEUR

The pound hit a new low earlier this month although was unable to break through a key technical support level and soon bounced back to more favourable buying levels.  Given the current lack of support for the pound it seems likely sterling will remain under pressure for a while.  Although, there have been a number of recent economic data releases indicating the euro zone is beginning to feel the effects of the credit crunch so we may start to see some euro weakness.

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%.  The base rate is now 2.25% and it seems the dollar may be supported in the near term however signs of stronger US economic growth are most crucial to the dollar’s prospects.  Also, it seems the Fed is more likely to boost liquidity and improve the functioning of financial markets than to make further aggressive interest rate cuts. 

GBPCAD (Loonie)

Canadian Interest rates are now 3% following a 50 point reduction by The Bank of Canada last week.  This caused an initial weakness of the Canadian dollar although the loonie has rallied on the back of record high oil prices ($120pb).

GBPZAR (South African rand)

The South African Reserve Bank raised interest rates by 50 points earlier this month providing some support, although much of the South African rand’s rally has been down to rising commodity prices.

GBPAUD (Australian dollar)

The Australian dollar remains strong with new record highs against the pound.  Interest rates were kept on hold at 7.25% this month but with rising commodity prices the Aussie dollar has made substantial gains against sterling.

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