When looking at the Euro versus the British Pound exchange rate forecast, Forex has made some interesting claims in December of 2008. Although the economy was already being impacted, information came out from forecasters that for this particular pair of currencies, a serious high was about to be reached. When looking at movement between the Euro and British Pound exchange rate at that time, serious gains were confirmed. Because of this, experts believed that the current trend had gone as high as it could go.
What made this prediction so interesting was that shortly thereafter it was proven that the British Pound was actually among the worst performing currencies for that particular year, falling to a six-year low when compared to the US Dollar and the Euro. This incredible weakness was directly linked to the economic fallout. The British Pound continued to lose strength through the first year of 2009 and while the US Dollar was recovered somewhat, it took until last week for the Pound to show some growth.
Throughout 2009, the Euro compared with the British Pound exchange rate was stronger while the Pound continued to struggle. Sadly, for the United Kingdom, falling oil prices caused inflation to plummet even further although consumer growth toward the latter part of 2009 did see some growth. Then in October, consumer prices actually saw an increase of 4.1%. The worst part was that next to the Federal Reserve Bank, the Bank of England had been an extremely aggressive bank in the year 2008 with interest rates being cut by 2%, the lowest in a 57-year history.
Now, looking at 2010, the UK economic data saw a slight improvement, which is why as of the first week of March 2010, traders, and investors were shocked with the British Pound decreased by over 300 Pips. When asking forecasters the reason for this collapse, most agreed that five factors come into play, which include the following:
1. First, forecasters looking at the Euro versus the British Pound and the recent drop believed that when Prudential announced it had plans to purchase the Asian operation of AIG for more than $35 billion in cash and stocks, the Pound reduction was the result. The reason was that some of the cash for the purchase would have been with British Pounds.
2. Another consideration was the separation between the United Kingdom and Germany’s interest rate, which reached an incredible high during the year 2005. Although the interest rate for the United Kingdom fell below the interest rate for the Euro, the price involved for the government to borrow in the United Kingdom over Germany showed a significant increase.
3. The drop of Pips seen the latter part of February and the first part of March 2010 was believed to be due to certain comments released by the Bank of England. In this case, the comments raised a slight concern for risk of the BoE increasing the size of the QE program but even if this did not happen, the fact that the statement was made created genuine concern in the value of the British Pound.
4. Then on Friday, March 12, 2010, the CFTC Commitment of Traders published a report showing that short British Pound and Euro positions were at an all-time high. When looking at traders with Forex, had good reason to go with claims about unemployment rates being at 12-year highs while consumer spending fell significantly during 2009.
5. Finally, some experts believed the unexpected exchange rate drop had to do with talk about traders selling hedge funds and a large number of stop orders remaining a 1.5117, which was the same for the low over the past nine months. Once stop orders reached 1.50 and were tripped, followed by the British Pound and US Dollar breaking under 1.4935, within a three-month period, 158 Pips fell!
The good news is that as of March 17, 2010, the British Pound actually strengthened, especially when compared to the US Dollar. Forecasters are more optimistic than they were a couple of weeks ago specific to the Euro foreign exchange rate to the British Pound.
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