Foreign Exchange

GBP Foreign Exchange Rate Forecast Today 23rd April 2009

Budget
The Budget out yesterday was one of the worst on record for the Labour party. Alistair Darling claimed he is trying to save the public finances by announcing larger than expected borrowing of £175bn. He also announced that the UK economy is expected to shrink b y 3.5% - the worst since WW2 but said he expected it to pick up by the end of the year. David Cameron said however ‘Britain cannot afford another five years of Labour.’ Indeed, only fifteen minutes into the report Sterling dropped by over 1% against both Euro and US Dollar.

Public Borrowing
Public borrowing will also touch record levels as the Treasury tries to combat falling tax receipts, higher spending and the mounting cost of banking bail-outs. Further adding to the government’s woes is the problems of the Retail Price Index which on Tuesday hit the lowest rate since 1960 at -0.4%. Darling went on further to say he expects the UK economy to deflate to a low of minus 3% by September. With inflation on a downwards trend it allows the Bank of England to cut interest rates further if required, which could also have a negative impact on the value of Sterling.

Unemployment Report
Unemployment figures released yesterday morning prior to the Budget showed that the number of people searching for work has recently hit 2.1 million, the highest level since Labour took power in 1997. There are four points to the currency compass which affect exchange rates-two of the main parts being political and economic factors. So if we review the current state of both the economic and political climate in the UK things do not look good.

According to Darling ‘no country could insulate itself from the world downturn,’ yet the IMF predict borrowing from UK GDP will hit 12% both this year and next. GDP in the second highest country in Europe is currently France at 6.3%. The world leader is borrowing is the US, at around 13% of GDP but the IMF predicts that the UK in 2010 will be the biggest among the G20.
Therefore, many clients who have been looking for the ‘green shoots’ to send the Pound back to levels of this time last year may have to wait a lot longer for the Pound to recover.

Bank of England Minutes
The Bank of England yesterday announced that the vote was unanimous at 9-0 in favour of keeping interest rates on hold. Indeed, the vote in favour of freezing rates at their historic low of 0.5% was largely expected by economists. Howard Archer of Global Insight said ‘The
minutes suggest that the MPC is maintaining an open mind on whether or not its quantitative easing programme is sufficient or whether it will need to be extended or even reduced.’ My personal belief is that things could get a lot worse before they recover.

Our currency exchange services provide a professional, efficient and cost-effective method for currency conversion. Our very personal service is suited to business users, needing to buy forex at the best currency exchange rates available, and for the private clients who wish to make a single money transfer, or regular payments such as overseas pension transfers. Call FX-Foreign  Exchange now on +44 (0) 1480.458400 .

Sterling tumbles as UK govt projects big public debt, tax rise

Chancellor Alistair Darling says competitive fx rate is helping exporters

The Pound hits a 3-week low of $1.4440 = GBP1.00

Sterling tumbled to a three-week low against the dollar on Wednesday after the UK government projected a massive increase in public debt and said it would increase taxes as it unveiled its budget.

The pound was also weighed down as British finance minister Alistair Darling said a competitive exchange rate would help exporters.

The UK currency came under pressure as concerns mounted over Britain’s ability to service its debt as it tackles the worst economic downturn in more than 60 years.

Growth projections were largely in line with expectations

“The currency would have been affected by the overall projections, not just growth, but the public deficit ones as well, which are quite staggering in terms of the scale of the borrowing,” said Geraldine Concagh, economist with AIB Group in Dublin. ”I think it creates something of a negative backdrop for sterling relative to what we’ve seen over the last week or two.”

Darling said net public sector debt including bank interventions would increase from 59 percent of gross domestic product this year to 68 percent next year.

“The debt-to-GBP ratio is on the high side,” said Geoffrey Yu, currency strategist at UBS in London, adding that this was putting selling pressure on sterling.

A new income tax rate of 50 pct from April on higher earners was also slamming the currency, he said.

“These taxes are a worrying sign. People will wonder if the UK is a viable destination, given high tax rates.”

Sterling fell to $1.4440 against the pound its lowest since early April. By 1238 GMT, it was down 1.3 percent on the day at $1.4477.

The euro was up 1.5 percent 89.66 pence <EURGBP=>, on track for its biggest rise in a month.

Britain will issue 220 billion pounds ($320.5 billion) of government bonds in the 2009/10 fiscal year, the Debt Management Office said, well above the 147.9 billion it estimated last month and higher than market forecasts of 180 billion pounds.

The chancellor says that, for the first time since WWII, the world economy is expected to contract this year.

£20b increased in bank lending for mortgages this year.

Borrowing expected to be £275bn, some 12.5% of GBP

The Chancellor Mr Darling says that although our exports are falling, exports in Germany and other countries are falling more sharply.