Sterling caught a cold last week after credit rating agency Standard & Poor's moved its outlook on AAA rated gilts to negative. That's not an actual downgrade, but it is an indication that the extent of our quantitative easing measures and the dramatic increase in national debt is having an impact on the UK's investment status. The pound dropped sharply on the announcement, losing nearly two cents in just one hour. However, a steady recovery took hold, and by this morning we were actually breaking new highs. One of the more commonly used financial market proverbs holds that, "what should go down and doesn't go down can only go up". That neatly sums up last week's action.
The pound has been so oversold in recent months, and pessimism has reached such an extreme that investors are now numbed to it, and the market ultimately shrugged off the bad news. That reaction gives us further cause for optimism in the short term, and we are hoping to see more upside from Sterling over the next few weeks. The next technical barrier is the February high around 1.1575. A break above there would be very significant for sterling, possibly indicating a further rally to the kind of levels that actually make us look forward venturing abroad this summer! As always, please take care in case the current rally starts to crumble. Last week was a timely reminder that anything can and will happen. Clients looking to buy the Euro should consider covering half of any requirement here while the going is good, and consider placing a stop order in the market to protect the balance.
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