The pound has held up well of late. Sterling currently buys around $1.55, the average level for this year. Against the euro, the pound is at its highest level since 2008. The single currency is worth about 79p. In late December 2008, it almost reached parity with the pound.
So what next? This week’s soft retail and housing data show that the officially shrinking economy “remains fragile at best”, as FxPro.com puts it. But the pound “has been a beneficiary of capital flows from investors fleeing Europe”.
Investors including sovereign wealth funds have moved some money into London property and UK gilts. Given the state of the continent, these flows look unlikely to end soon. So there may be more mileage in the sterling-euro trend, reckons FxPro.com.
It sees the euro sliding to 75p in a few months. Medium-term, however, sterling is likely to be undermined by “the UK’s large trade and banking linkages to a rapidly slowing eurozone” and a lacklustre domestic economy, along with yet more money printing, says Morgan Stanley.
The bank’s foreign-exchange analysts estimate that, against the dollar, which tends to benefit from global risk aversion, sterling is set to slide by 6% or so by the end of March 2013.