Market Update
By Mark Dampier | 08 Sep, 2008
The main feature of the Stock Market over the last few weeks has been the weakness of Sterling, or to put it the other way around, the strength of the US Dollar. The Dollar has rallied on the back of a fall in the oil price and the fact that the economy has been doing better that most expected. This means that, in due course, US interest rates are likely to go up while in my view the European and UK areas will see declining interest rates during 2009.
Where Sterling will feature over the next year or so is difficult to say as forecasting currency is notoriously difficult and incredibly volatile. My best guess is that Sterling will settle somewhere between $1.60 to $1.75 against the pound, but against the Euro this may be a different picture. While we have weakened at the moment against the Euro, it’s own economics look just as bad if not worst that our own. In Italy, Spain, Ireland, Portugal and Greece the picture looks very bad indeed. They are now desperate for lower interest rates. However, the European Central Bank has been much more hawkish than any other, not only keeping interest rates high but increasing them. It is quite possible that in 2009 we may actually see the Euro weaken against Sterling so holiday destinations will suddenly change from America to Europe.
Finally, given that the fall in Sterling has been as every bit as great, if not greater than we saw in 1992 when we exited ERM (European Exchange Rate Mechanism), this should bring some welcome relief to exporters. Indeed I would suggest this is a bullish signal for the stock market in due course. When we left ERM in September 1992 it was really the start of the long bull market which took us to 1999. Whilst I think it’s too early to be aggressive buyers of the UK market as September and October are notoriously poor times, I do believe that opportunities will begin to present themselves, although there are still some issues to be ironed out in parts of the financial sector.
