This week we have seen sterling hit 1.60 against the dollar and 1.15 against the euro. These are seven and four month highs respectively.

Foreign exchange broker, World First, has seen an uptick of 54% in people buying euros, compared with just one week ago.

In response to this strengthening of the pound, Jeremy Cook, chief economist at World First, has the following review and comment:

The past three weeks have seen a strange light cast over the British pound but is this shimmer an angelic dawn or a sickly glow for the former sick man of Europe?

Jeremy comments, “Data has been good to the UK in recent times with PMI figures from the services and manufacturing industries moving back to levels that indicate expansion while those involved in the property market, whose nightmares seemed to be only a knock on the door away, are eager to talk of the small crumbs of nourishment provided by the construction industry, served on a bed of green shoots au mortgage.

“For a nation of homeowners we were strangely unaware of the creaky foundations that our mutual Georgian rectory was built on.”

The impact of the dependence on credit has been talked to death for the past year or so but a change has been seen in recent weeks. LIBOR, the rate at which banks lend to each other and a useful indicator of risk, has fallen to a level not seen since before the fall of Lehman Brothers. It was higher in the days before Northern Rock even; the bank that brought the credit crunch to the viewers of ‘Breakfast’ TV.

So what’s the problem?

Jeremy continues, “It’s a particularly British trait to complain about the speed of something improving in our favour but the momentum that has propelled sterling higher over recent trading sessions is starting to look overstretched. Think of the sterling/dollar rate as a 1,500m athlete; a fast start is likely to see the runner tire and break down toward the end whereas a slow and steady pace will hopefully see the participant finish strongly. As an indication, the last time cable’s momentum was this elevated, the last time the British runner was going this fast, was the day sterling hit 2.12 against the dollar. Since then, for every week the pound has made a positive move, it has endured two in which it has ended Friday lower than Monday’s beginning. The same measure seen against the sterling/euro cross was not this overextended since the realms of 1.48.”

Technical analysis aside, Jeremy is of the opinion that this good data will not last, “A poor unemployment figure, a FTSE 100 company in trouble or another bank in trouble would see the shine come off sterling’s apple very quickly.

“A good many people stuck their heads in the sand on sterling’s way down, refusing to accept the possibility that a once calm and, relatively, predictable market was going against them. My advice would be don’t be ignorant to the risks now while the sun is shining.”

Jeremy’s updated predictions are:

Ends

Further comment and quotes can be provided by:
Jeremy Cook, chief economist
Jonathan Quin, managing director

Please contact Wendy Casterton direct on 020 7801 1060 or email wendy.casterton@worldfirst.com

About World First:
World First is a currency exchange broker, serving both private and corporate clients. Set up in 2004 by directors Jonathan Quin and Nick Robinson, the company is experiencing very fast growth and now employs over 70 people in three offices (London, UK, Sydney, Australia and Hamilton, New Zealand). It has 20,000 clients and transacted over £1 billion in 2008.

World First’s corporate clients are generally import or export companies, making regular transfers. World First helps them minimise their exchange rate risk and manage their currency exposure.

Private clients largely use broker services to purchase a property abroad, usually a second home or investment or to emigrate.

World First is also now offering currency options to SMEs and private clients through World First Markets Ltd, which is authorised and regulated in the UK by the FSA. World First is the first and currently only broker to offer currency options which have, until now, been the preserve of very large corporate organisations through their banks.