Experts Ponder Over Pound’s Feasibility to Stay Ahead of Other Currencies

According to Bank of England’s chief economist, things can move in any direction for the British Sterling.

Last week, the Sterling was shaken after the economist said that there was a high chance of interest rates going down just like they could go up.

In 2014, there was a lot of speculation about when the UK would see the first rise in rates after 2009, but no one seemed to discuss the possibility of the interest rates going in the opposite direction.

Pound Against the Pack

After surprise remarks by Andy Haldane, the pound lost 0.5% compared to the Euro and Dollar last week.

This has again determined the unpredictable nature of exchange rates. The remarks of Haldane caused a fall of the pound against other popular currencies like the Australian Dollar, Kiwi Dollar, Canadian Loonie and Rand.

Last year, Sterling was higher than the other currencies and showed a growth of almost 6% than the Australian dollar, 4% against Kiwi, 1.5% against Canadian Loonie and 1.3% against the Rand.

Since the UK financials have overtaken its commonwealth peers and is not dependent on commodity pricing, the Pound has highly benefitted.

Last week, the OECD mentioned that in the G7 nations group, the UK will be the firmest growing economy with a growth of nearly 2.6% this year.

Currently, there seems to be some weakness in the market and hence, has paused for a bit before the change in its status during the UK elections.

Commodities and Currencies

Hard commodity-backed currencies are ones that are dependent on main exports of oil, gold and various minerals. An example of a soft commodity backed country is New Zealand as majority of its exports are in dairy products.

Since last year, the commodity prices have sunk. The main reason for commodity currency decline is the global slowdown in demand for the various natural resources and China’s economic slowdown with a weak Eurozone as well.

Previously, China showed a voracious demand for commodities, which has now crumbled. This, however, will ideally support the sterling, as per Charles Purdy from Smart Currency Exchange.

However, China will still have a high demand for dairy products coming from New Zealand. So, it will definitely be a positive thing for the New Zealand Dollar. Canada will also benefit with the growth that is forecast in the American economy.

Mentioned below are the forecasts for different currencies.

The Australian Dollar

The RBA cut its rate of interest to 2.25% (a record low) last month and with its plan of cutting rates even further, the rate is forecast to be at 2%.

The Kiwi Dollar

To buy the NZD, it would be ideal between 2.07 and 2.10 and to sell the same, 1.90 would make sense.

The Canadian Dollar

The Loonie saw a six and a half year low in February 2015 compared to the Pound due to a rate cut from the Bank of Canada sometime in January 2015.

The South African Rand

Since January, the Rand has been weak and is at 9% against the Pound and continues to decline.

As per records, this is the maximum trade deficit and it is mainly caused as there is a major fall in exports. There is also a general decline in commodity pricing and the unemployment rate is currently at 24.3%.

Posted On 01 Apr 2015

, By Wayne

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