Foreign Currency Exchange

As the first full week of trading begins for 2009, analysts are watching with interest to see whether Sterling will continue to slide against the Dollar, or if we are reaching the bottom of the market. The festive period saw a reduced volume of trade in the currency markets, as a result the cross remained uncharacteristically rangebound, albeit at the low end of the market, hitting a fresh 8-year low before a slight recovery.

The main point of interest this week will be the rate decision from the Bank of England MPC on Thursday. A further cut is expected which is likely to weaken the Pound due to both lower interest yield, and falling investor confidence. Tuesday also sees the release of the minutes from the Federal Reserve meeting last month where rates were slashed to 0%. Many investors have questioned the FOMC policy, which leaves little room for manoeuvre in the near future if we do not see a rapid return to growth in the US economy.

It is likely that market participants will begin to price in a rate cut in the UK as the week goes on, therefore the impact of the expected cut from the Bank of England may be minimal when it occurs. If the cut is greater as some have predicted, we could see extended Sterling weakness, and Dollar buyers should be wary of fresh lows in the 1.30s.

Other significant data releases for the week include PPI Inflation Data for December in the UK likely to show a slight drop in the core rate, and US Non-Farm Payrolls & Unemployment data are expected to show increased unemployment in US Industry. In theory these should strengthen the Pound and weaken the Dollar respectively, providing some support for Sterling.

With all of this new data coming out in the following week, we expect a much wider trading range. Speak to your account manager at FCG to ensure that you purchase your currency at the best time.