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Currency Update - GBP - USD

After one of the most volatile weeks in living memory GBP was left teetering on the edge of

a potential abyss. The 1.65/1.70 area is a key level of support for the currency

and as long as GBP can hold these levels then it has the potential to recover some of its

recent losses. However, the next few weeks will be crucial in deciding the long term

prospects for the currency as a loss of the 1.65/1.70 area could prove very negative for the

currency in the long term.

Currenct Trends Week 41

GBP - USD

There seems to be no respite in sight for GBP with the currency coming under further

pressure this morning. More losses look likely for the currency as investors flock towards the

USD. Our initial target of 1.7500 is only a whisker away with moves towards the 1.70 area a

distinct possibility. Any subsequent rallies should be limited by heavy levels of resistance

above the 1.80 area.

GBP - Euro

With the Euro getting trashed against the USD it is forcing GBPEUR higher. For the first

time in a long time the outlook for GBP looks a lot brighter against the Euro. The recent rises

look likely to continue with moves towards the 1.30/1.32 area likely in the coming weeks.

Good support below 1.2600 should underpin the market.

Currency Tip for the week

Someone once said ‘More money is lost through indecision than by the wrong decision’. Will

the U.S rescue package save the day? Only time will tell. The only thing we can be sure of is

further turmoil for the markets with GBP likely to have a very rocky ride in the coming

sessions. Last week we commented that GBP’s demise was not over and that looks more and

more likely this morning. Further losses look likely with moves towards the 1.75/1.70 area a

distinct possibility with any rallies capped by strong resistance below the 1.90 area.

GBP continues to struggle to make any short-term headway against the USD.

GBP continues to struggle to make any short-term headway against the USD finishing the

week on the back foot. In the coming weeks there could be further losses for GBP however

the rate of decline should slow as we approach the 1.90 area. Once this period of weakness

has concluded we are still confident that GBP should rally once again with levels above 2.10

achievable later in the year.

Dollar slips to record low against the pound

The US dollar slid to a 26 yr low against the Pound this morning before falling back slightly to $2.06., as investors bet that the Federal Reserve would cut interest rates to help the economy this week.

The dollar also hit a record low against the Euro on Monday trading at $1.4438 - before pulling back to $1.4375 early in

London

trading.

Lower interest rates can weaken a currency as investors move funds to assets that enjoy a higher return. The dollar's slide helped drive oil prices to a new record above $93. It also contributed to gold prices rallying to a 28-year high. The

US

central bank, the Federal Reserve, is widely expected to cut interest rates by at least a quarter of a percentage point to 4.5% on Wednesday to limit economic damage from the housing market downturn.

At the heart of the dollar's decline have been problems in the

US

housing market, caused by the Fed increasing interest rates in order to slow accelerating inflation. As a result of the higher borrowing costs, an increasing number of borrowers have defaulted on loans, especially in the sub-prime mortgage market, which specialises in lending to people with poor credit histories.

This, in turn, has spread to global credit markets, as many of the sub-prime mortgages were repackaged and sold on to European and

UK

banks as investment assets. The Fed cut its main interest rate in September to ease the pressure on consumers and reassure the global markets but last week's run of weak economic data raised expectations that further cuts were needed to rejuvenate the economy.

Pound Hits Record heights in 25 years against the dollar

THe pound hits record highs against the dollar.. Here is the view from HIFX.

Our Currency Predictions

Yesterday we saw the USD finally throw in the towel with GBP pushing above 26 year highs and the EUR hitting all time highs. We feel these are very significant moves and will be the prelude to further gains for both currencies in the coming months. As always the currencies will not move in a straight line and any move higher will be interspersed with some corrective dips. However any such dips going forward should be shallower and shallower and we feel the next target for GBPUSD should be around 2.05/2.06 with EURUSD possibly hitting levels around 1.40/1.41 in the coming months.

Watch this space.