Sterling (GBP) boosted by Robust PMI Data,Euro-Zone Sentiment Nudges Higher Sterling (GBP) has been one of the favorite currency of many traders, as the United Kingdom’s economy continues to outperform many other currencies around the world. Sterling (GBP) bounced off this year’s highs on Friday as the Financial Times reports sterling could rise to $1.40 per pound by the end of next month.
In terms of political and economic news, there is good news for the UK in terms of GDP figures, and possibly on the European Central Bank (ECB) QE plans. Sterling (GBP) would have to be close to the current EUR/GBP rate in order to sustain its gains over the longer term. The British Pound Sterling (GBP) could continue to be boosted by robust PMI data, and by stronger political sentiment.
Sterling (GBP) could go higher if it is able to reach the levels of EUR/GBP around a little over 3, with a strong Eurozone economy. Sterling (GBP) could possibly slip back if the Eurozone economy is showing weakness.
The Eurozone has been facing a very difficult situation recently, with both Greece and Portugal having defaulted on their debts, with many economists predicting a situation that could get much worse. It is the Federal Reserve, which has been holding off from QE plans, that could see a rise in GBP.
The Prime Minister of the Eurozone, Mario Draghi, has addressed investors in a speech on the IMF’s webpage and said the Eurozone will move from being a Eurozone to an Atlantic Eurozone. There has been some debate about whether the Federal Reserve would be willing to tighten interest rates if the situation in the Eurozone worsens, especially if it becomes clear that the ECB cannot reverse the economic situation in the Eurozone in time. In fact, the Federal Reserve may not even extend its balance sheet even further.
In reality, the Fed may decide not to unwind its balance sheet at all. However, some insiders believe that the Fed is reluctant to loosen policy at this time as it is worried about inflation and the potential effect of low inflation on the US economy.
Meanwhile, some analysts believe that the United States and the Eurozone are heading towards a situation where the Bank of England may intervene to help avoid a breakdown of the Eurozone. This could possibly bring down the Pound Sterling (GBP), as the ECB could buy up Euros and increase the value of the Euro.
Sterling (GBP) could potentially fall even further if the political situation in the Eurozone deteriorates, as the only way the Eurozone could return to its previous positions would be for the Eurozone to lose its currency. Sterling (GBP) could increase sharply if political sentiment turned against the Eurozone, and the European Central Bank (ECB) tried to increase interest rates.
If the political sentiment was not there, the Fed could turn its attention to strengthening the dollar and devaluing the Dollar, which may have the effect of strengthening the USD (U.S. Dollar) and weakening the Euro. This would be the perfect opportunity for Sterling (GBP) to get even stronger, which would probably lead to the dollar rising in value.
The political sentiment could push the Pound Sterling (GBP) even higher, and this could potentially cause the dollar to weaken even more, and the Euro to weaken even more. The market may react this way, as the political sentiment turns against the Eurozone.
In the past, the Forex market has reacted to political and economic factors using simple historical record of past movements. It appears that this time, the market may be much more volatile, as the political and economic outlook around the world looks bleak, and volatile.