This report looks at the current situation as the Pound comes under pressure following poor UK data, and what is likely to affect GBP exchange rates this week. The table below shows the difference you would have received when buying £200,000 at the high compared to the low for a number of currency pairs over the last month:
|Currency Pair||% Change||Difference on £200,000|
The Pound's recent run has been firmly halted during the early part of the trading week, with Sterling losing value against a host of the major currencies. GBP/EUR rates have dropped below 1.13, hitting 1.1245 at yesterday’s low. GBP/USD fell sharply to 1.13935 before a slight recovery, whilst GBP/NZD also took a significant hit, dipping to 1.9021 overnight.
Much of the media’s focus this week has been on the losses seen in the US, European and Asian stock markets, which can be attributed to a major sell-off stocks by investors. Whilst there is no direct correlation between the stock markets and currency exchange rates, any shift in global financial conditions can have knock on effects for an economy and ultimately this will impact the value of their currency.
The Pound’s value has impacted by a variety of external variables but it is likely that a run of poor economic data, alongside some negative comments made by EU Commissioner Michel Barnier, have contributed to its current downturn.
One of the reasons the Pound had performed well of late was due to an improved economic outlook, with growth forecasts raised slightly, in line with an upturn in the global markets. Add to this talk of prospective trade deals with the US & China and this has helped remove some of the uncertainty, regarding how the UK economy will perform post Bexit.
These contributing factors have led investors to believe that the downturn the UK economy was likely to encounter due to Brexit, would at least to some extent, be offset by the upturn in global productivity.
Yesterday’s stock market crash may now dampen those expectations and following some poor UK Manufacturing & Services figures, investor confidence in the Pound seems to have waned.
Perception is everything and with Manufacturing & Services such a key component of any economy, it is easier to understand why investors may have shied away from their Sterling positions over recent days.
Looking ahead, and any clients with a short-term Sterling currency position to exchange will be keeping a close eye on tomorrow’s Bank of England (BoE) interest rate decision & monetary policy statement.
This is considered one of the most important economic releases of the month, as a change in interest rates or the current Quantitative Easing (QE) programme, can have a significant impact on Sterling’s value.
Whilst there is not likely to be a shift in the current stance, it is worth noting that UK inflation rose to 2.9% last month, which will be a concern for the BoE. Their 2% target level seems unachievable under current conditions and usually a central bank would look to raise interest rates to help counter the problem.
However, BoE governor Mark Carney has stressed that he does not want to raise rates again in the short-term, especially with so much on-going uncertainty around Brexit. Therefore it will be 9interesting to hear his tone in his statement tomorrow, which is likely to impact Sterling’s value over the coming days.
For further information on upcoming events that may affect your currency exchange call our trading floor on 01494 725 353 or email me directly here.
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