Currency Pairs - The main market movers for GBP/EUR, GBP/USD, EUR/USD, AUD/USD, USD/JPY

Currency Pairs - The main market movers for GBP/EUR

, GBP/USD, EUR/USD, AUD/USD, USD/JPY

GBP/EUR

The Euro gained over 4% last month against Sterling as the race to raise interest rates took a dramatic turn in favour of the bullish Euro. GBP/EUR rates were very close to that elusive 1.20 earlier in the year as investors were ploughing money into the Pound expecting an interest rate hike in May. However UK Q4 GDP surprisingly showed a 0.5% contraction -although this was blamedpredominantly on Christmas snow and the UK's complete lack of ability todeal with adverse weather conditions this has left the UK teetering on the edge of a double dip recession. Although this is (in my opinion) unlikely, many investors will be holding fire on the Pound until Q1 GDP figures are released towards the back end of April which is likely to give us a clearer idea of when (or even if) the UK are going to raise their base rate. Noticeably the GBP/EUR rate could be on the precipice of heading evenfurther down in theshort term as the ECB meet on Thursday with many investors expecting a 0.25 base point rise.

In the more long term I personallythink that Europe's Sovereign Debt is still yet to play a large part on Euro weakness. An interest rate hike is not going to help the struggling pigs, in particular Spain who have a very large proportion of variable mortgages. If more countries are to take a bailout this year, especially Spain, then the Euro is likely to sufferdespite theFinancial Stability Fund.

GBP/USD, orthe 'Cable Rate'

Sterling remains very close to a 12month high against the USD currently. The USA is expected to be the last of any of the UK, Euro-zone and the USAto raise rates, with a member of the FED saying that he expects it to be the back end of this year until they can. The American recession has been termed the 'unemployment' recession butas a sign they are moving in the right direction, unemployment is now at a two year low. If the Americans continue to address their economic difficulties, namely a very high unemployment level (at 8.8%, higher than the UK and the Euro-zone), and a struggling housing market (something that has lead the American out of five of the last seven recessions) then they may start to gain some ground against the currently sluggish Pound.

The UK have always been reliant on the Financial Services industry which continues to suffer from lower investment and increasing regulation and so GDP is likely to continue to be held back with British hopes now looking toward the smaller but booming manufacturing industry.

I think the Cable Rate is likely to hover fairly close to 1.60 until UK GDP figures are released and may finally break the 1.65 when the UK eventually raise interest rates later in the year. Generally the USD looks bearish against most majors this year and I would expect Sterling to have a strong finish consolidating a position close toward the 1.70 mark.

EUR/USD

As is the case with GBP/EUR I wouldn't be surprised to see the Euro make significant gains over the next few weeks as the markets push investment towards the single currency when (or I supposeif) they raise rates on Thursday. Although the FED minutes are due for release this evening I would suggest it is unlikely (judging from a number of speeches this week) that anything too surprising will come from these minutes and that the Euro's short term outlook will continue to look good against the Dollar.

In my opinion the Euro though is the most concerning currencyat the moment, although the American economy is struggling and the UK are suffering from stagflation (high inflation and low GDP) these difficulties are dwarfed from long term problems faced by the Euro. To havea single economic policy to manage 17 different member states that range from Germany to Greece is much like trying to manage the Boston Red Sox by playing a 4-4-2, a football formation - it's just not practical. I really do think that the worst is yet to come for the Euro-zone who are going to face increasing difficulty trying to keep their strong economies performing and stimulating the struggling Southern states. Do not be surprised to see EUR/USD to get close, or maybe even break the 1.45 mark in the next few weeks if they raise rates, but do try to maximise this is you have your funds in Euros - I would be sceptical as to how long this strength will last.

AUD/USD

The Aussie Dollar has been one of the strongest performing currencies since it fell out of the market when the recession hit in the back end of 2008. Since then it has gained hugely against most majors as it's economy remained relatively strong whilst others falters and demand remained high for it's exports. The Aussie is currently sat over comfortably over parity against the Dollar, but will it continue to gain? I think that it can only go so much further. If the Aussie Dollar gets too much stronger it is going to have difficulties moving some of their commodities and when the UK and Euro-zone really begin to recover they may benefit from a lot of the investment that has headed towards the Aussie throughout the recession.

Furthermore whilst all the other economies are looking to raise their base rate, their is concern in Australia that they will have to cut their base rate at some stage this year. In the Short term I would say the AUD is most definitately bullish to the Greenback but this is more clouded in the medium and the long term. The Aussie has been vulnerable in the past to dropping value hugely in one day and it certainly is a currency to keep a very keen eye on if you are looking to transfer funds,

USD/JPY

The Japanese Yen is a strange currency at present, unlikely almost any other economy the Japanese Yen benefitted initially from the catastrophic Tsunami. Whereas usuallythe damage to the economy is quickly built into the exchange rate by weakening the native currency the Yen actually gained, from insurance companies and other Japanese firms repatriating funds. The G7 then met and agreed to sell some of each of their own Yen to weaken the currency as it depends so heavily on it's own more luxurious exports (electronics and computer/ car parts). So the Yen then lost around two or three percent in a single day. Since then the Yen has been weakening from the concern over the Nuclear situation at Fukishima that continues to prevent work over most of the economy in close proximity in the plant and making general life difficulty for everyone as far as Tokyo - food supplies are scarce and the Government are advising people to make their homes air-tight. Alarming indeed.

Whilst this continues the Yen is likely to continue to weaken against most majors, and may be one of thefew currencies to struggle against the USD in the short term.In the more long term the Japanese economy seems in a more assured position than the American economy and I wouldexpect it to beginto gain as soon as the Nuclear situation is under control and the damage from the Tsunamibegins to be repaired - it is worth noting that the Tsunami is the most expensive natural disaster ever, thought tocost around 187 billion - this is over 32 times more expensive than the Australian Floods and Cyclone combined!!

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