The Sterling is sliding!

The sterling has felt the crunch in currency once it lands at the Eurozone as Martin Hickman wrote it at The Independent’s.  Euro gaining for 17% from the past year, records its highest above £80.  Sterling had hit the lowest in 11 years compared to other major trading partners’ currencies.

The pound has not yet received any battering the U.S. dollar; however this week, it lost 1% aside from its hitting the $2 mark the previous week, as Economist.com wrote.

Last 1997, early during that year, the UK as its economy is affected by the credit crunch caused by the crisis in the United States caused by sub-prime crisis brought about by household debt amounting to 160% over disposable income, struggling housing market and eventually a house bubble; the pound is dragged into the orbit of the dollar.  

The global economy is experiencing one of the biggest economic slumps in history. Because of the investments put into the American market, rates in interests are cut, thus weakening the strength of UK assets.  There are no interest rate cuts will be adjusted by the ECB, as Martin Slaney of GFT Global asserted.  The tight squeeze from euro on the sterling will be felt, until the global economy stabilizes.

While the pressure from the pound is increasing, tighter credit controls have been seen to slow the growth of underperformances against the green buck. Lending companies are now increasing interests despite of a low number of borrowers because of the increased risk due to the falling economy. However, it seems that the pound will fall up to $1.70 against the dollar by year end, as affirmed by Phylis Papadavid of Societe Generale.

Foreign owned banks are feeling the credit crunch, caused by the deficit sharply narrowed in the fourth quarter of 2007.  They have less income compared to the previous year.  The trading of goods is slowing down and has already at GDP levels of 6.6%, as HSBC reported.

The risk on the pound is charging down hill caused by the reverse of the boom in the direct investments inflows in a previous M&A activity in previous years. The British government will have to do its best to reverse it back to the healthy boom of the recent years to be able to make the pound lessen its risk and to be able to upgrade the currency.