The forex rally of the British currency against the euro continued last Friday (January 7). The sterling was able to breakthrough the €1.20 level, which was the highest level reached by the sterling against the euro since the month of September of last year.

After posting some significant losses in the foreign exchange market during the holiday season, the sterling has steadily recovered early last week. The pound was trading at €1.16 during the New Year but it rose to €1.201 last Friday (January 7).

According to the report of Reuters, most analysts and forex traders think that the main reason behind the recovery of the pound against the euro was the selloff of funds related to the euro as investors are again in panic mode over the sovereign debt situation of the eurozone. Hence, the recent strength of the pound was significantly lifted by the weakness of the euro. Meanwhile, similar strong position was achieved by the pound against the US dollar as the latest employment figures in the US disappointed the bullish predictions of the markets.

The continued recovery of the sterling against the euro is an indication of the declining investors’ confidence on the eurozone economies. It is predicted that the single currency will slide 2.1% of its value against the British currency. This would be the largest weekly slide of the euro since the middle part of the November last year.

If a currency trader is interested to make money through the forex market, it would be a good strategy to take advantage of the forex trends of the sterling and the euro. The bullish trend of the sterling, however, is unlikely to be on a long-term basis according to some analysts.

The continued rally of the sterling is unlikely to last for long because of the recent report that the economy of the United Kingdom will be downgraded to a less important position by the year 2050. The economic experts working for PricewaterhouseCoopers have pointed out that UK is unsuccessful in establishing its presence and dominance in the emerging markets. Presently, the United Kingdom is at the number six position in terms of economic strength. It is trailing not far behind the United States, Japan, China, Germany and France. Unlike other strong and developing economies, however, UK economy is not efficiently exploiting the opportunities offered by the emerging markets.

It is predicted that by the year 2050 the economy of the United Kingdom will have been surpassed by the biggest developing economies at present, namely, India, Brazil, Russia and Mexico. This will put the United Kingdom at the ninth spot. Nonetheless, the UK economy may still have enough time to adapt.

The predictions for the forex performance of the sterling are generally optimistic for this year. Many economic experts agree that the sterling will modestly strengthen its position against the dollar and the euro. According to a survey conducted by Hargreaves Lansdowne, it is predicted that the British currency is likely to be in a bullish trend this year, which could range from €1.05 to €1.35. Most of the experts who were polled see the sterling rising above the €1.25 mark. Meanwhile, the forecasts for sterling’s performance against the US currency are also optimistic, ranging from $1.40 to $1.80.

If the Bank of England will change its current policy about the low interest rates, there would be fewer factors that will hold back the bullish trend of the sterling.