Global outlook: Currency predictions for 2012
By Chris Towner, Director of FX Advisory Services at HiFX
Sterling remains undervalued and despite all the uproar from the austerity measures, a tough approach to reducing the debt with stable politics is the only way forward and if there is a recovery then Sterling is well poised to take advantage of this.
FX is a ratio market and by this we mean comparing one country against another. You can often get caught up in the bleak outlook for the UK economy with its borrowing problem and slowing growth; however what needs to be pointed out is that this is being resonated throughout the world.
The UK was one of the first countries to address the debt problem with austerity measures helped by the new coalition Government and with a competitive and flexible currency; the UK is well placed to weather the storm despite the difficult conditions that we find ourselves living in. Also the Diamond Jubilee and the Olympics will make the UK an attraction and give a much needed boost to confidence.
2012 will see a much needed drop in the inflation rate as the higher commodity and transport costs of 2011 roll out; however the consumer just like the country is experiencing a culture change from a ‘buy now, pay tomorrow’ culture to a hybrid version of ‘save now to buy tomorrow’. This enforced culture change needs to be tolerated and will help steer the UK back from the abyss of its borrowing problem and will avert us from the more concerning route of a full blown debt problem.
The one thing to watch out for going into 2012 is the bond market and the Government’s borrowing costs. At the moment there is festive cheer as we can take full advantage of our AAA credit rating and low... continued on page two >