How Low Can Sterling Go?

Having come in this morning to see the sterling market where it now, circa mid 1.10’s versus the euro and flagging against most other currency pairs, we fail to see how sterling will redeem itself. It seems that despite the euro’s on going dramas, our Prime Minister David Cameron has a smorgasbord of work to do over the next six years if he is to succeed in his long term mission.

Pound Sterling – UK Markets

Some call it ambitious, others describe it as necessary. Whatever your individual views on the government’s budget, the fiscal squeeze is hitting us hard. Consumers aren’t spending, retailers are suffering and if recent months are anything to go by, six years could be one tough slog. Put in perspective, no post war government has managed more than two years of such harsh spending cuts. We are up against short term growth that will severely lag behind other advanced nations. With little news due out in the UK today the only notable changes will be in share prices that have been trailing those in Germany and France. So far this year, the FTSE has gained just 2 percent this year; that compared to 5.2 percent by France’s CAC 40 and 7.7 percent behind Germany’s DAX.

US Dollar – US Markets

The dollar is still being crucified by lingering debt concerns. Furthermore, data due later this week is expected to show that US employers expanded payrolls at a pace that failed to reduce the jobless rate, adding to bets the Federal Reserve will keep interest rates near zero for longer. Payrolls only managed to climb by 100,000, after a 54,000 increase in May. This was the smallest in eight months.

Euro – European Markets

Did the Greek Bailout fix the problem? Martin Jacomb is the chairman of Share Plc and former director of the Bank of England. He stated that whilst the EU’s motives for rescuing Greece have been to prevent another banking crisis and to preserve the overall state of the euro, the policy will not work. Whilst there is no process in place allowing countries to leave the euro, Greece will remain uncompetitive and therefore, a bailout only delays the inevitable. Today has seen German and European purchasing manager index figures released. Whilst the levels are slightly lower than previous, they are still above the targeted level of 50. This can be seen as positive and has therefore had little effect on the markets. However, with the ECB expected to raise interest rates on July 7th, even with concerns over Greece lingering, don’t expect too much movement on the single currency in the lead up to the announcement.

Other Currencies – Highlights

A recent advance in the Canadian Dollar may have been overcooked. This revelation has become apparent as speculators are now backtracking on initial investments. The loonie has subsequently slipped against all of its 16 major counterparts. On the flip side, the South African Rand has rallied to the longest sequence of gains versus the US Dollar as the EU approved a bailout package for Greece. The currency appreciated for the sixth day, gaining 0.2 percent against the dollar. With global risk appetite still high and the dollar under severe pressure, investors are in favor of the Rand.