Has Sterling Rise Gone Too Far?

This morning, UK retail sales came in much stronger than expected with year on year sales to December at 5.3 per cent - the strongest growth since October 2004. This much higher figure gave a massive boost to Sterling against the US dollar with the pound jumping more than 100 points on the news. Sterling is currently trading at 1.6450 against the greenback, perilously close to its 52 week high. The pound had a very strong 2013 much to the surprise of analysts with sterling rising from 1.48 USD when Mark Carney became governor of the Bank of England to the current 10% plus appreciation since then. Respected financial institutions such as "Global Investment Authority" predicted that the pound would fall below its 2009 low of 1.37 USD soon after Carney took office. How wrong they have been! They certainly have egg on their face with that prediction.

Sterling has had a very strong 12 months against a number of currencies as economic indicators for the UK have been beneficial to the currency, but has the rally in sterling gone too far? Against commodity based currencies such as the Australian dollar, the pound has risen from 1.44 AUD to the current 1.87 USD - more than a 25% appreciation for the pound. Against the Canadian dollar, Sterling has risen from 1.52 CAD to over 1.80 CAD today, the pound is nearly 20% stronger today from its 52 week low. Against two of the BRIC countries, Sterling has risen from 2.90 to 3.88 against the Brazilian Real, a 30% appreciation against the South American super power and against the Indian Rupee, Sterling has risen from 80 Rupees to over 100 Rupees to the pound, a 25% rise from its one year low.

A strong Sterling is going to make it difficult for UK exporters and as many overseas currencies are beginning to look too low and making their exports more competitive, it is going to be difficult for the pound to trade at these hefty levels as UK exports become more uncompetitive with the high pound and surely Sterling is braced for a fall in coming weeks.