Eurozone to shrink in 2013: Why this is good news

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An economic slump in the Eurozone could be good news for sterling if the European Central Bank, who are now forecast to cut interest rates at some point this year, do indicate further monetary stimulus.

The pound has endured another torrid week, falling across the board against its major trading partners as negative sterling sentiment dominated trading. The markets have a tendency to overshoot when the global outlook is gloomy.

Guest post by Alistair Cotton, senior analyst, Currencies Direct

We are at a point of maximum pessimism for the pound, with the exchange rate now reflecting everything that could possibly go wrong and more. However this is a good thing for the currency in the medium term because the situation is not as bad as the market is reflecting and positive data flow, when it comes, will lift the currency.

Furthermore, a lower currency does offer opportunities for British businesses to expand into new markets as British goods become cheaper and a recovering UK economy should keep demand steady at home.

Further reading: GBPUSD weekly forecast.

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