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Here is this weeks update from currency expert Keith Spitalnick.

Hola amigos!

Increased unemployment claims, further threat of job losses and the disagreement over the introduction of public spending cuts have prompted a sell off of the pound over the last 36 hours. Fridays trading opened with sterling a cent below the previous day’s inter-bank average, with the rates teasing the 1.14 support level, and dropping to between 1.1350 and 1.14 following the release of January’s retails sales figures. The pound has fallen amid fears that the British economy is showing more signs of stress as the year progresses.

Greece causes instability.

Greece has been the main cause of volatility over the past 7 days, with EU minister expressing their alarm at the level of deceit required to cover up such a significant deficit. For the first time since 1993, British public finances have gone into the red in January.

Such a deficit is, at 12.8 per cent of British gross domestic product, even greater than Greece’s, however, the head of sovereign risk strategy at HSBC has commented that there is ‘zero’ percent chance of Britain defaulting on her loans. Uneven economic figures will ensure that the recovery is only gradual and the Bank of England recently reported a decline in lending to businesses, indicating that the economic slowdown is far from over.

Last quarter’s GDP figures relied heavily on manufacturing activity, and this week has seen the release of the most recent CBI Industrial Order Expectations. Also known as Industrial Trends Survey, it’s a leading indicator of economic health. Businesses react quickly to market conditions, and changes in their expectations can be an early signal of future economic activity such as spending, hiring, and investment. The CBI surveys about 550 manufacturers and asks respondents to rate the relative level of order volume expected during the next 3 months; above 0 indicates increasing order volume is expected, below indicates expectations are for lower volume. The figure for the most recently published survey, released on Thursday, showed that expected volumes are down on the predicted forecast of negative 35. The survey shows a negative 36, and although better than the previous month’s release (negative 39) it does suggest that even the manufacturing sector is tempering its expectations despite improved export activity.

Next week.

Next week promises to provide a lot of information for the euro zone and the UK, and if this weeks survey of German Institutional investors (ZEW Economic Sentiment) is any indication it seems that the euro may try to break through the range over the next few weeks 1.13 – 1.14. Investors and analysts are highly informed by virtue of their job, and changes in their sentiment can be an early signal of future economic activity. Germany is the most dominant economy in the EEA and the fact that they are more confident this month than last means that the pound may come under further pressure.

Hasta la proxima!

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