Poor times for pound
Another year has passed and 2010 has certainly been a rocky one for sterling exchange rates. The pound lost significant ground against the majority of major currencies. We saw it fluctuate by around 13.5 per cent against the US Dollar - from around $1.6457 to a low of $1.4227 - and 12 per cent against the Euro - from €1.239 to a low of €1.09. As for the Israeli shekel, it has fluctuated 12.85 per cent, from NIS6.1368 to a low of NIS5.348. In fact, against most of the world's major economies, sterling has weakened - up to a maximum of 15 per cent against the Japanese Yen. Depending on the time of your exchange the losses could have been staggering.
Looking ahead to the first quarter of 2011, the pound may be in line for a similarly rocky ride. Although retailers reported record Boxing Day sales this week - more than 10,000 shoppers descended on Brent Cross in north London in the first hour, spending a reported £10,000 a minute, while 75,000 had packed the shops at Manchester's Trafford Centre by lunchtime - many are concerned about 2011.
The first-quarter figures for the retail sector - which contributes to around 60 per cent of the UK's GDP - will be a key indicator. Good figures may pave the way for some strength but they are looking more likely to be a hindrance on the pound, raising doubts over our recovery from recession.
The rise to 20 per cent VAT in the New Year, plus the impact of the government's austerity measures, is likely to make it a testing time for the coalition government, who will continue to be heavily scrutinised over political divides. Political uncertainty can cause currency weaknesses and when you take into account the exposure that the UK has to European debt this too could be unfavourable for sterling exchange rates.
All this may make current levels to buy foreign currency quite attractive. If you would like to take advantage, a forward contract - where a seller agrees to deliver a specific cash commodity to a buyer at some point in the future - could give you the peace of mind with any currency exchange that needs to be carried out over the next few months.
Ben Amrany is a proprietary trader with Currencies.co.uk