FXStreet (Delhi) – Research Team at Investec, notes that what started as a downtrend soon turned into a freefall for the UK Pound.
Key Quotes
“You may be forgiven for thinking we’re referring to Oil prices, Stock markets, or Emerging Market currencies – but in this instance it is the Pound. It seems to have very few friends at the moment, falling over 6% in the last 6 weeks against the US Dollar, taking the pair to a 10% fall in the last 6 months. “But the US have hiked rates, and policy divergence is driving the pair lower” you may cry – but a quick look at the Pound’s 8% fall against the Euro since ECB President Draghi cut interest rates and extended QE in December, points to something quite different.
A looming referendum on EU membership in the UK has investors nervous, economic data seems to have slowed into the end of 2015, while the Bank of England have remained dovish since their November Quarterly Inflation report pushed back rate hike expectations the best part of a year.
It’s not all doom and gloom though for Sterling. It’s worth noting that a strong Pound and falling energy prices were high on the list of reasons the Bank of England backed away from normalising interest rates – and although oil prices continue to tank, the weakening Pound may help import enough inflation to slow the currency fall by easing Bank of England concerns. In effect, the further we fall, the more hawkish the Bank of England can become – assuming the EU referendum isn’t a total disaster.”
(Market News Provided by FXstreet)