After 5 consecutive days of negative trading against its major counterparts the Pound opens up down against virtually of 16 of its counterparts once again today, erasing much of Friday’s gains following the highly influential US Non-Farm Payrolls data. The UK currency has also lost considerable value amid strong speculation that the Bank of England are considering extending its emergency stimulus of buying up government bonds and gilts as part of its assett purchase program. The Pound currently trades well below the key 1.20 psychological level against the Euro and tests market support at 1.5350 as i write this – this move with the Pound primarily comes down to extremely poor economic figures coming out of the UK which indicates the recovery peaked in the second quarter and a clear sign that the key components are starting to slow.
The recent estimate of UK GDP in the three months to June increased at the fastest pace since 2001 at 1.2%, but declines in housing, manufacturing and construction has added to fears over a second recession. Data released on Friday showed that futures traders increased bets that the Pound will decline against the Dollar, after an index of UK services industries dropped in July to the lowest level since April 2009. UK interest rates are set to stay at the record low of 0.5% for longer, as policy makers may look to shore up the recovery by extending quantitative easing beyond the current £200 billion.

It could be an important week for sterling with the Bank of England meeting to discuss monetary policy on Wednesday and Thursday and a number of important data releases scheduled, including trade and industrial production for July. The Pound is likely to decline further against the majors in the build up to Thursday’s announcement and with Andrew Sentance expected to, once again, be the sole voice for an interest rate increase, we could be left with a three-way split among committee members on monetary policy.

Ahead of the key events, the UK currency has started the week down against all 16 of its counterparts and remains vulnerable to selling ahead of Thursdays release. If you have a requirement buying into any of the majors it may be wise to cover your positon or look to work protective Stops to minimise risk and exposure to market. If you would like to discuss your requirement with me further do not hesitate to give me a call on my direct line +0044 1736 335264.

Tom Trevorrow

+0044 1736 335264

tom.trevorrow@torfx.com