THE UK saw its first widespread snowfall last week, coinciding with a fall in value of sterling against the majority of it counterparts in the foreign exchange market.
In particular, the pound struggled against the euro, hitting its lowest level against the single currency since April 2012.
The main factors behind the weaker pound include fears over a triple-dip recession and a drop in credit rating due to poor growth and missing debt reduction targets.
The UK’s shaky relationship with the EU doesn’t help either.
Unless you’re an exporter, the prospects for the pound don’t look good this year, especially when you compare the UK economy to that of the US.
The US economy grew last year and is expected to do so again in 2013.
Closer to home, investors look likely to limit their exposure to the pound due to the potential for instability in the UK and its personality clash with the EU.
Investors will also be considering the impact on the pound of the ‘positive contagion’ in the eurozone, where sovereign borrowing costs continue to come down.
From the point of view of the UK, the best outcome would be for the eurozone crisis to continue hogging the headlines in order to draw attention away from its own problems.
However, following the more positive forecast on the eurozone economy from ECB President Mario Draghi, the exchange rate between the pound and the euro continues to languish at the 1.20 level.
That may be just the medicine that the Bank of England has ordered to give a shot in the arm to exports and rebalance the economy.
Keith is head of European Sales at HiFX. To contact HiFX and find out how the team can help you with your international transactions, call in at the office in Centro Plaza, call 951 203 986 or email [email protected]
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