Wednesday, 24 February 2016

Pound falls further on Referendum worries and interest rates

Sterling has continued to fall against the Euro and Dollar this week, falling to €1.2650 and $1.3920 respectively. The fact that Boris Johnson has announced his support for Britain exiting the Euro has lent weight to the 'leave' campaign, and as I've outlined in previous posts anything that lends support to the UK exiting the EU will be negative for the Pound. Here's how GBP/EUR and GBP/USD exchange rates have fared this week:

    GBP/EUR:
   
     GBP/USD:

As you can see, the Pound has been in sharp decline, particularly against the US Dollar, that has now fallen 5 cents so far in the last 2 days.  Part of this is due to the uncertainty over the EU referendum, but there are other factors pulling Sterling lower too.

The Bank of England (BoE) governor has also helped to weaken Sterling, stating yesterday that UK interest rates could be dropped to zero, and they may also pursue additional stimulus measures should the economy deteriorate. The rumour of lower interest rates mean that investors will be dumping the Pound for currencies with a higher return. This is a very different story to this time last year, when analysts expected the BoE to raise interest rates. This was much of the reason the Pound was riding so high last year, but the climate now is very different, hence the demise of the Pound over the last few months. 

There are no data releases of note today, so exchange rates are likely to be driven by investor sentiment, and I would not be at all surprised to see the Pound continue to fall against other currencies today and this week. If I needed to convert Sterling to USD or EUR, I would get in touch to discuss your options as soon as possible to ensure you're protected against a further deterioration of Sterling exchange rates.

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