Sterling predictions and exchange rate forecast

The pound has now lost 5.8% against a basket of major currencies this year and is the worst performing currency in the developed world through 2010.

With sterling euro now trading at six and half month lows and sterling US Dollar at near two month lows, the pound is really suffering. The main driver behind the pound's current weakness is the increased possibility of additional Quantitative Easing (QE). This increases supply of GBP in the economy which reduces the price and value.

The UK's GDP figures for the third quarter are due to be released tomorrow at 09:30. These could be instrumental in determining exactly when and how much addition funds the BoE pump into the economy through QE. Therefore a poor GDP figure, below the 0.4% expected could increase the possibility of QE and lead to sterling weakness. I would not be at all surprised to see rates in GBP EUR fall below 1.10 if this is the case, and GBP USD fall below 1.50.

For sterling Australian dollar we have seen significant losses over the last few years. Since October 2008 when the pound hit 2.66, we have lost over 40% against the Aussie Dollar. The Australian economy has prospered throughout the economic crisis as its resource rich economy has driven growth. Furthermore the country was barely exposed to the subprime crises and has not had to pump funds into the economy in the same way that the US and UK have.

This week we have CPI (inflation) data out at 02:30 on Wednesday morning, a high figure could lead to interest rates going up in Australia (currently 4.5%) which would probably lead to further AUD strength. If you have any upcoming GBP/AUD currency requirements, I can run through this in more detail if requires. You can fill in the form on the right or call 01494 787 478 and I will be happy to explain the market movers.

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