Currency watch: Sunny outlook for the pound

So it seems summer is over and now we pivot and get ready for the sprint to Christmas.

Despite all the negativity that has been hanging around, Q3 in the UK has actually started in a positive fashion.

Surveys from the manufacturing and services sectors have remained strong, while consumer confidence seems to be returning, albeit at a very slow rate.

This has allowed the pound to hold its recent ranges against the euro and the dollar.

One of the characteristics of the pound in 2009/10 was that it would quickly fall for no apparent reason, and generally be a portrait of instability. Hopefully those days are behind us.

Of course, that doesn’t mean that problems elsewhere can be forgotten about.

The euro area continues to shudder under the weight of debt and the onslaught of fiscal tightening needed to bring budgets under control.

Meanwhile, the big question in the US is whether more quantitative easing is needed to prevent a double-dip recession.

Both of these problems obviously pose significant risks to their respective currencies, but unfortunately they also present problems to the pound.

We noticed in a recent survey that new industrial orders in the Eurozone dipped in the past month by around 0.7%. This is something that could prove to be a problem for British exporters.

The vast majority of the UK’s exports are bound for the Eurozone and if they are not ordering goods (for sale or as part of a further manufacturing process) then it means less activity here in the UK.

This would lead to a slip in GDP, lower growth and lower prospects for the pound.

As David Cameron likes to say, “We’re all in this together”.

Jeremy Cook is chief economist at World First foreign exchange

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