By: Mike Campbell
According to The Bank of England, Sterling may become a long term victim of the recession, settling at a lower level than other major currencies (of course, this has all the hallmarks of a self-fulfilling prophesy). This would tend to make UK exports more affordable than those from other major developed economies, so it may not be that unwelcome. The logic behind the bank’s assertion is that the overseas investors that have sustained the UK’s decade long current account deficit may have lost their ability, or their appetite, to buy the UK financial assets that sustained it. If so, then the long-term sustainable exchange rate for Sterling will settle at a lower level than previously. As if to echo this prognosis, the Pound fell to a five month low against the Euro and was at its lowest value against the Greenback for three weeks. The Pound was worth 1.106€ and $1.6134 yesterday.
UK public sector debt stands at almost £805bn which is 57.5% of the country’s gross domestic product; a record high figure. Borrowing has spiralled as the government bailed out failing financial institutions at the height of the global financial crisis.
On the commodities market, oil traded lower yesterday. It was down by almost $3 in London yesterday at $68.36. The reason was a bearish concern that the recession had not finished yet and that the recovery, such as it is was too fragile to sustain demand for black gold. Traders are hoping to get some signs about the recovery when G20 leaders meet in Pittsburgh, USA at the weekend. The G20 is set to discuss whether further stimulus measures are needed (which will send oil lower) or if the measures in place can start to be withdrawn (signalling confidence that the end of the recession is in sight).
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Live FX Rates
| Symbol | Change | High | Low |
|---|
| EUR/USD | 0.0094 | 1.2623 | 1.2562 |
|---|---|---|---|
| AUD/USD | 0.0116 | 0.9879 | 0.9799 |
| EUR/GBP | 0.0041 | 0.8036 | 0.801 |
| EUR/JPY | 0.45 | 100.21 | 99.81 |
| GBP/USD | 0.0044 | 1.5716 | 1.5678 |
| USD/CAD | -0.0057 | 1.0271 | 1.0239 |
| USD/CHF | -0.006 | 0.957 | 0.9532 |
| USD/JPY | -0.26 | 79.73 | 79.35 |
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