Most of the attention in forex markets recently has focused on the weakness of the euro and the relative strength of both the dollar and the yen. However, it is also worth noting that the proud pound is still performing relatively well, despite the fact that the economy is in recession and the BoE has implemented yet another round of quantitative easing. For instance, cable is now trading at just under 1.55, not too far below the average for the year to date of 1.5765. Against the euro, sterling continues to advance, with EUR/GBP falling to 0.79 this morning, its lowest level since October 2008. At the end of 2008, the euro almost reached parity with the pound.
As we have been intimating for some time, the pound has been a beneficiary of capital flows from those investors fleeing Europe. High net worth investors from all parts of the eurozone have been diverting some of their wealth into both London property and UK gilts. Sovereign wealth funds likewise have shifted some of their euro-currency allocation into the likes of the pound, as well as the greenback, the Japanese yen and the Australian dollar. The consistency of these flows into the pound out of the euro evident over the first half of the year is unlikely to end anytime soon. As such, we can reasonably expect that the pound will continue to make steady progress against the single currency in the months ahead. We could see 0.75 reached before year-end.
