Sterling, the major currency of UK has climbed the most in the last 2 weeks against Euro, the shared currency of 17 European countries. Investors feel that 6.4% decline that the currency has experienced this year is pretty excessive as the Government is expected to delay the fiscal austerity measures in the budget to be published in next week.
Apart from Euro, Pound has increased against the greenback as well, thereby putting an end to the consecutive decline of last 5 days. Incidentally, a weekly gauge that measures the relative strength of Pound against its major counterparts declined to the lowest level earlier, since November, 2008. This result signaled that the currency is expected to gain. The break-even rate of 10 years has reached to the highest in last 4 and half years, as investors believe that the Bank of England will be sacrificing the 2% inflation target in an attempt to boost the growth. British gilts were more or less unchanged. Incidentally, break-even rate determines the inflation expectations.
As stated by the Senior Currency Strategist of Rabobank International, Jane Foley, Pound is experiencing certain position adjustments at this point of time. Foley added that investors are now trying to pick the bottom because there is lots of negative news in its price. Foley commented further that he would prefer selling the rallies in Pound.
On today, Pound has increased by 0.9% against Euro and is currently priced at 86.71 pence per Euro. This marks Pound’s biggest intraday gain against Euro since 25th February. On the other hand, it has jumped up by 0.1% and is now at $1.4921. Only yesterday, Pound went down to $1.4832, the weakest level of the same since 23rd June, 2010.
Valentin Marinov, who heads the European Group of Currency Strategists at CitiGroup, believes that if Osborne, on 20th March budget, announces delay of some of the fiscal austerity measures, there can be certain positive data surprises. According to Valentin, if Sterling experiences any upside at this point of time, that will pretty much on temporary basis and that should be used as a way to add to the bearish medium-term view of the investors.
From December, 2012 to February, 2013, the UK economy has declined by 0.1% as stated by the National Institute of Economic & Social Research. This has increased the specter of a triple-dip recession.