Sterling Euro exchange rates have fallen to their lowest level in 5 years as the news of when Article 50 will be triggered has caused a huge loss of confidence in Sterling. There has been no official announcement as to whether the UK will opt for a ‘hard’ or a ‘soft’ Brexit and until we have some form of certainty I think Sterling could really struggle to improve against all major currencies.
Prime Minister Theresa May has not spoken in any great length as to how or what will happen with the negotiations and it seems as though European leaders are not going to make it easy for the UK to leave the European Union. Last week Francois Hollande said that European leaders should take a ‘firm’ negotiating stance with the UK. This caused the Pound to plummet and we saw a huge loss in the value of the Pound overnight and the Pound has struggled to make gains since.
Some analysts have even suggested that we could see GBP EUR exchange rates move towards parity and unless we have some change in political sentiment we could see further issues for Sterling.
If we look at UK economic data that has been published since the vote to leave the European Union in the main the data has been relatively strong. Typically positive economic data has a positive effect for the currency involved but at the moment this is not the case for Sterling exchange rates. Economic data is relatively thin on the ground this week so the focus for any Sterling gains is likely to come from the political establishment.
A recent survey carried out by the British Retail Consortium has suggested that if the UK fails to strike a positive deal in 2019 then we could see prices and tariffs going up for UK goods and services. Reverting to the deal in place with the World Trade Organisation this could see tariffs on clothes go up to 16% and meat up to 27%. With Retail Sales making up a big part of the UK’s economy this could be disastrous if this actually happens.
Clearly the costs would have to be passed on to consumers and with GBP USD rates also at their lowest levels in 3 decades costs are likely to go up which will have a direct impact on inflation levels something that the Bank of England are keen on keeping under control.
The Bank of England are not due to meet until 3rd November but there is a chance that we could see further rates cuts from the current level of 0.25%. With the European Central Bank already having announced a tapering to their current QE programme the rumours of a UK rate cut are also keeping the Pound under pressure against all major currencies. Interestingly enough the FTSE has hit record highs but clearly confidence in the Pound is waning.
Indeed, Chancellor Philip Hammond has recently urged for calm in the currency markets and said yesterday ‘we are going to go through a period of volatility, there will be lots of commentary going on and we can expect to see markets being more turbulent over this period and we should prepare for that.
For anyone making a transfer to Europe and worried about where markets may move prior to the end of this year then it may be worth looking at buying a forward contract which allows you to fix an exchange rate for the future for a small deposit.
Call our trading floor today if you would like to discuss the different contract options available to you on 01494 725 353.
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