Sterling exchange rates have continued the negative trend that has become a normality following the referendum to leave the EU over 100 days ago. The news over the weekend with Theresa May setting a timeframe on invoking article 50 to within the next 6 months’ caused yet further losses for the Pound. GBP/EUR levels reached a fresh 3 year low on Monday and GBP/USD now sits at a new 30 year low. To put this into figures, a £200,000 transfer now secured you €2,500 or $4,200 less compared to only Friday of last week. It again highlights how important it is keep in constant contact with a dedicated broker.
Even though speculation about when or if article 50 will be invoked has now been displaced, focus and concern about the impact to Sterling’s value very much remains. There are still a number of questions about what the UK will look like outside of the EU, what trade agreements will be in place and whether the UK will remain the headquarters for a number of global businesses. Most recently the motor trade has commented about the potential impacts for their industry if the UK was to have a ‘hard exit’, that being the introduction of the 10% tariff on all cars manufactured in the UK and then exported to Europe. This is something the head of Nissan confirmed only last week that puts their car plans within the UK at risk of closure, threatening thousands of jobs.
These plans could also be echoed by Honda and Toyota who have large manufacturing plans in the UK. This 10% EU import tariff impacts any item imported, remembering that the UK exports over 60% of its goods and services to the EU this could have a very large impact on the economy moving forward and how competitive UK PLC can be. There are also an estimated 5,000 financial service jobs are at risk of being re-located to mainland Europe so commercial news from these large employers should be keenly watched for long term trends for Sterling.
We had some good news this week as UK manufacturing posted the fastest growth in two years. (This was however overshadowed by the market pricing in the new information with the timelines of Article 50.) Whether the higher Manufacturing figures were given a boost due to the threat of exports in a few years being more expensive, or whether the weakness in the Pound is making exports easier is yet to be defined. UK Construction also showed a boost when it was released yesterday morning allowing GBP sellers to achieve some slightly better levels that the lows reached at the beginning of the week.
Next on the horizon is Service PMI data today which is expected to show a fall. Friday however is the busiest day with over 10 economic released scheduled throughout the day. A majority of which are expected to show a contraction resulting in more losses for the Pound. Economic data moving forward is now for a time period in this post-referendum period, and with the Bank of England suggesting a recession in 2017 there remains a fairly strong argument that Sterling will remain under pressure until at least the year end.
Currency markets however do not move in a straight line so timing a transfer will remain important.
I personally don’t expect the downward trend for Sterling to finish this side of Christmas and November already looks likely to remain negative. Two large events are already scheduled for November, on the 3rd November the Bank of England holds their Quarterly inflation report and is expected to cut interest rates again to 0.1%, something that would be seen as negative for the pound. Philip Hammond’s autumn statement is also planned for the 23th November which is expected to confirm more spending rather than budget cuts. Increasing the debt levels in the UK and weakening the pound potentially as a result. Something to be aware of if you are simply hoping that rates will climb back to where they were. Anyone with Sterling to sell who decides to wait for better levels really needs to have an economically based argument.
Sterling has lost further ground since yesterday with the likelihood that further losses are due. If you are holding Sterling we recommend getting in touch with our team today on 01494 725 353.
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