The last 24 hours have not been great for sterling!
First off the Office for National Statistics revised the UK GDP figures for the third quarter down from 0.8% to 0.7%. It also revised the expected GDP rise for all of 2010 down from 1.7% to 1.5%. This suggests the UK economic recovery remains uncertain looking into 2011, and in consequence sterling tumbled to 1.1737 against the euro.
Furthermore the minutes of the latest Bank of England meeting were released on Wednesday, and revealed strong concerns about rising inflation (presently soaring above the 2.0% government target at 3.3%). This suggests that an interest rate rise in 2011 is almost certain, and bodes ill for mortgage holders who’ll be forced to pay more.
Things look equally nerve-racking in the euro zone meanwhile. For instance the markets remain nervous that credit rating firm Moody’s is going to downgrade Portuguese government debt in 2011. This could force the Government there to accept an ECB-IMF bailout, and ramp up the EMU crisis another notch.
In addition rumours are circulating that France and Belgium face credit rating reviews, adding further fuel to the euro fire.
Finally things looked comparatively rosy in the US on Wednesday. Sales of homes increased in November to 4.68 million compared to 4.43 million twelve months earlier, indicating the US economic recovery is on the up.
It is worth remembering though that the Barack Obama recently passed a multi-billion dollar stimulus package in the US, and the nation already faces debt at 65% GDP. Hence the US (and consequently the dollar) could come under a lot of stress in 2011!
by Peter Lavelle with foreign currency exchange specialist Pure FX.