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Currency Exchange Forecast: Pound Dollar Lowest Level Since June 2010

Published: 12 Mar at 10 AM Tags: Pound Sterling, Euro Exchange Rate, Dollar Exchange Rate, Forex, Euro Crisis, UK, Economy,

The pound reached its lowest level against the US dollar since June 2010 at the start of the trading week as the effect of the loss of the UK’s AAA credit rating and the likelihood of further action by the Bank of England continues to weigh on the pound sterling.

This morning, further poor economic data has been published with the Royal Institute of Chartered Surveyors (RICS) reporting that the UK house price balance for the month of February has fallen from – 4 in January to -6 in February.

However, the report does show a pick-up in activity.

According to Peter Bolton King, global residential director at RICS, the UK housing market is now picking up in most areas of the country.

"However, even with activity running at its best level since the middle of 2010, it is still well down on its pre-crisis norm," Bolton remarked.

Meanwhile, Deputy Prime Minister Nick Clegg has said that the coalition plans to put the Treasury and Bank of England's Funding for Lending Scheme "on steroids" following a dip in lending in the fourth quarter of 2012. Furthermore, there is speculation that the government wants the scheme to run beyond 2013 and be skewed towards business lending rather than mortgage loans for property.

The dollar kept up its recent momentum yesterday on the back of the much stronger than expected US jobs figures out at the end of last week. The US unemployment rate tumbled to a four-year low.

The euro was subdued yesterday. The negative news on Friday that credit ratings agency Fitch has downgraded Italy was balanced by the news that the so-called troika (representatives from the European Commission, International Monetary Fund and European Central Bank) will give Portugal an additional year to meet its public deficit target as the country struggles through the impact of the recession. Lisbon now has until 2015 to bring its budget deficit below the 3% target.

The troika feel that Portugal has made a “great adjustment effort” and the consensus among them is that, given the worsening external setting, the country should be granted an additional year.

The Troika, which is visiting Lisbon this week, is wrapping up its quarterly review of the Portuguese economy and bailout adjustments.

The Portuguese government has just reported fourth quarter 2012 GDP (gross domestic product) that showed a huge 3.8% contraction year-on-year, even worse from the third quarter's 3.5% drop.
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