The Pound’s Rebound
January 28th, 2009 Posted in Analyst Picks
The Pound’s decline since the beginning of the current financial crisis has led analysts to reevaluate the once safe-haven currency. The peak that the Sterling stood at against the Dollar and Euro was as high as $2.10 and € 1.50. However, in recent months and in some cases recent days, we’ve seen the Pound hit record lows against several of its main currency pairs. The thing that traders want to know is is the Sterling going to decline further, or is its recent mini rebound a long-term trend that will lead to the cable’s recovery.
On Friday 23 January, the Pound slid to lows against the U.S. Dollar not seen in over 20 years of 1.3504. Additionally, with the EUR/GBP, there has been increasing talk that the pair will hit parity. However, in the past few weeks, these talks have died down as the EUR/GBP pair has failed to trade for a prolonged period over the 0.9500 level. Moreover, ever since the British banks, such as Barclays and Lloyds started to report good news about the industry at the beginning of the week, the Pound has rebounded against its major currency crosses. This has been seen mainly versus the USD, EUR, JPY, and CHF.
This turnaround in fortunes for the GBP has led to a split in analysts forecasts. There is one view that the recovery in the past few days is only temporary, and the Pound will continue its decline as the global recession continues to unfold. There is another view, which has come to the forefront in recent days, is that Sterling’s behavior in recent days indicates that the Pound may recover much of its lost ground vs. its major currency pairs in the coming months..
Both sides of this argument do have validity. However, it is more likely that as markets return back to normal, despite the recession, then the GBP may go bullish against its major currency pairs such as the USD, EUR, CHF, and AUD. This is the case, because investors have already taken into account the bleak economic outlook for most of the world’s economies. It is also important to note that the European Monetary Union (EMU) is under threat from smaller single currency members, such as Spain and Greece. Furthermore, the Euro-Zone’s economy is likely to spiral downward even faster than Britain’s, as the global recession continues to kick in.
In the coming months, as risk aversion unwinds, and people start to put their money back in the stock market, the Pound is likely to regain at least some of the ground which it lost against its major currency pairs in recent months. Therefore, the cable may yet again beat analysts’ expectations, as it is possible that the British currency may regain its safe-haven status again by the 2nd quarter of 2010. To start profiting from the forex market, we recommend that you open a standard account and invest your funds with ForexYard.
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Tags: Cable, dollar, EMU, Euro, Euro-Zone, European Monetary Union, forex market, Pound, safe haven, Sterling, The Pound's Ebound
