Sterling is gently reaping the rewards of weakness in both the Euro and US Dollar. The situation the US find themselves in is well documented, with President Obama at loggerheads with Congress over raising the national debt limit. The deadline day of August 2nd is edging ever closer, and although markets are nervous over the Dollars situation, markets still feel that a resolution will be made.
The Euro on the other hand has started to encourage the sceptics out of the woodwork, and there is considerable doubt about growth levels in the Eurozone over the coming months. This has been coupled with growing scepticism over Europe’s ability to pay back the Greek debt and also whether they can stop this spilling over into Italy and Spain (Europe’s third and fourth largest economies respectively).
Going forward we still expect to see further Euro weakness and this should allow Sterling to push past 1.14 and aim for 1.15-1.16 which is probably about as good as we will get in the short term. EUR/USD looks set for push back down towards 1.40 over the coming month and this will leave GBP/USD at levels just above 1.60 which is a good sign for Sterling considering the outlook for the UK’s economy.
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