Currency watch: Here come the autumn blues

September is upon us and with it comes a chill wind set to blow until the end of the year.

Summer’s optimism has been replaced by a sense of foreboding in financial markets as issues in Europe and the US continue to bubble over and traders run for the hills and safer assets.

The EU has managed to negotiate the past few years but has taken a couple of holes below the water line in the form of Greece, Portugal and Spain.

Some analysts still put the probability of Greece defaulting on its national debt at over 50% and, with Portuguese banks starting to wobble and German export growth slipping, the outlook for the EU is deteriorating rapidly.

Here in the UK the services, manufacturing and construction sectors have all seen declines in performance measures over the past month suggesting that growth in the UK is likely to slow in the second half of this year.
 
The prospects for sterling against the euro are definitely balanced towards the pound in the medium term as we believe the slowdown across the Channel will outweigh the one here in the UK significantly, although near-term risk to GBP comes in the form of the October spending review.

Little is being said by the Treasury on these cuts at the moment and we expect that to continue until the week before the announcement.
 
In the meantime, we suspect September will be a month of worried looks and furrowed brows in financial circles. If you see one of us, offer us a kind word and buy us a drink.

Jeremy Cook, chief economist at World First, 10.09.2010