City expert says double-dip recession a “strong reality”, despite Sentance’s reassurances

Travelex Market Analysis – London, 28th January 2010

Sterling hits a five month high against a broadly weaker euro

Sterling reached a five month high against a broadly weaker euro today, hitting a day high of €1.1625 this afternoon.

Mounting worries about sovereign credit risk within the euro zone have undermined the euro, as tumbling Greek government bonds highlighted the market’s concerns over their ability to pay back its soaring deficit.

Mark Bolsom, Head of the UK Trading Desk at Travelex, the FX Payments Specialist, comments, “Sterling was also bolstered by Bank of England MPC member Andrew Sentance’s bullish comments yesterday. The markets took comfort in his apparent assurances that Quantitative Easing will not be extended past its current level of £200 billion.

Bolsom continues, “Despite Sentance’s comments, I still think a double-dip recession is a strong reality and shouldn’t be rejected. It is an undeniable fact that both the government and Bank of England have pumped in unprecedented levels of stimulus into the economy and it has grown only marginally.

“And because of our huge deficit, we expect a real tightening of fiscal policy after the general election. The situation stands to get far worse when stimulus is withdrawn – we can see already that retail sales are already slumping now VAT has returned to its former level. The real question is what will happen to growth after the stimulus is withdrawn? I wouldn’t go as far to say return to recession is inevitable, but I would say it is a strong possibility.”

With regards to a broadly weaker euro, Bolsom commented, “Most Euro zone states will be pleased with a weaker euro as it helps their competitiveness in foreign markets. Certainly, Head of the European Central Bank, President Trichet, has been vociferous in calling for a stronger dollar against the euro.”

ENDS

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Jessica Buttress
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Email: jessica.buttress@travelex.com.

Notes to editors

About Travelex

Founded in 1976, Travelex is the world’s largest non-bank foreign exchange and payments specialist; with operations across four continents and 6,000 employees worldwide.
Travelex holds key positions in its three main areas of activity: Global Business Payments (TGBP), Currency Services and Card and Mobile Payments. Every year, more than 35,000 corporate clients and 30 million customers trust Travelex to manage their foreign exchange requirements.

Recently recognised by TowerGroup research as Industry Leader for payments innovation for SMEs, Travelex currently handles international payments worth £40 billion annually for over 750 large corporate and financial institutions.

Visit www.travelexbusiness.com/uk for more information or email the press office at jessica.buttress@travelex.com