2009 was a tumultuous year in the financial markets and a year to forget for the pound.
Sterling started the year at all time lows against the euro and although we had a few sterling rallies, there was never the appetite to resurrect the pound. So where do we stand now against the euro and what will 2010 bring to the table?
Well we can expect another volatile year in the Forex markets for both Sterling and the Euro. In the UK we of course have the general election, the preamble and the outcome will be closely gauged by the financial markets. If we see a closely fought battle or a hung parliament then expect sterling to weaken; the reason for this is that there will be a lack of a clear majority to agree on clearly defined policies to reduce the UK deficit. The ballooning UK deficit has and will continue to be an ongoing concern for UK Plc and for sterling; credit rating agencies will want to see a reduction in the deficit at least in line with Alistair Darlings forecasts in the pre-budget report. A change of government will be no excuse and we need to see real action in this regard to maintain the UK’s AAA sovereign rating and to support the pound.
There’s A Brighter Side:
On the brighter side the UK could soon officially show an exit from the recession if the GDP data for the fourth quarter of 2009 due at the end of this month comes in positive as expected. This data could give confidence to the Bank of England to cease the Quantitative Easing program in February which will again be sterling positive.
For the Eurozone we can again expect ups and downs depending on how the Eurozone as an entity holds up in 2010. For the most part of 2009 the Euro outperformed most major currencies and confidence in the single currency was high with large central banks buying euros as a reserve currency- largely to diversify away from the USD. However during December 2009 the euro hit a sticky patch as problems in Greece dented confidence in the euro. In addition to issues in Greece, there were banking problems in Austria and forward looking economists were predicting future problems for Portugal, Ireland and Spain along with Eastern European economies. On top of this unemployment in the Eurozone hit the psychologically damning 10% level. In December alone the euro retreated 5% against the USD from its highs!
In Short:
So in summary we can be pretty sure of a volatile year but more importantly where is the exchange rate for GBP/EUR heading? Barring any potential curve balls a hung parliament being one- I would expect to see sterling strength against the euro for 2010. Once the UK officially exits the recession and quits the QE program we should start the march higher. In addition I would expect to see further issues within European economies weighing on the euro and denting confidence in 2010 enabling a push back to the dizzy heights of 1.20…
Here’s to a prosperous 2010!
Please feel free to contact me at keith.s@currenciesdirect.com and I will reply to all your questions promptly.
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