This Sterling update discusses the likelihood of the Pound hitting parity with the Euro. It also looks at factors that could affect GBP exchange rates in the short term. The table below shows the market movements for a number of currency pairings in the last 30 days. To keep track of live rates visit our live foreign exchange rates page.
|Currency Pair||% Change||Difference on £200,000|
Just as Sterling holders thought it couldn’t get any worse, the month of August came and with it a raft of poor economic data for the UK and a cumbersome start to Brexit talks. As a result the Pound fell through key resistance levels against its major currency counterparts and is now hovering around similar rates to those seen mid 2008 crisis. The popular decision from our clients of late is to take the risk out of their transfers, bite the bullet and use their Sterling before the rates worsen further. With multiple global banks forecasting parity against the euro during 2018, it’s an understandable choice.
The UK’s ongoing Brexit talks, growing concerns of rising consumer debt and the ever waning likelihood of a UK interest rate hike in 2018 are of course the main causes for Sterling’s long term fall, with investor appetite for the Pound drying up by the day. The start of September is looking just as ominous. Yesterday, yet another line of senior Tory MP’s raised their concerns over PM May’s future, admitting a Conservative victory at the next general election seems unlikely with May in charge. Furthermore, Brexit talks seem to be moving forward at a painfully slow rate. Chief Negotiator Michel Barnier criticised the lack of clarity and factual content in the UK’s negotiation papers while Brexit secretary David Davis blasted the EU settlement demands, saying their numbers “just don’t add up”.
This morning, international trade secretary Liam Fox, insisted the UK must not give in to the EU’s blackmailing tactics. With no ground having been made on the questions surrounding citizens’ rights and the financial obligations being faced by the UK, the markets have very little reason to provide any support to the Pound. I expect further losses as a result.
If you have a short term foreign currency requirement it may be worth acting sooner rather than later. This morning’s manufacturing data (PMI) has the potential to worsen matters. The monthly release had been rising consistently since September last year but has started to soften since the general election result. Contact your account manager to discuss your options.
Despite all this, a main driver for Sterling’s value long-term is the Bank of England’s position on raising interest rates. Key Bank of England rate setter Michael Saunders highlighted the importance of raising rates sooner rather than later as inflation levels begin to gain momentum. He suggested that a slight adjustment would not have a drastic result on spending as was once suggested by the BoE, insisting a proactive approach is now needed to protect UK households from an uncontrollable rise of costs in the future.
I doubt Mr Saunders will be able to convince his fellow members to raise rates anytime soon, but this kind of pressure makes the likelihood of it happen in 2018 far more likely which should attract attention to Sterling moving forward as investors watch closely for higher returns on investment. This may well be brought up at next Tuesday’s inflation report and could potentially help Sterling spike. Those looking to buy Sterling might want to plan a transfer before this event.
For more information on how future data releases could affect exchange rates please call our currency brokers on 01494 725 353.
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