Tuesday, 5 July 2016

Pound falls to new 31 year low - GBP/USD, GBP/EUR forecast

The Pound continued its downward trend today, falling sharply against both the Euro and US Dollar. GBP/USD is now at a new 31 year low, and at a level not seen since 1985. Against the Euro, GBP/EUR rates have fallen to the lowest since the end of 2013, the lowest in 2 and a half year. Here's how rates have fared over the last week for our main 2 currency pairs:


Why has the Pound continued to fall?


It's all to do with concerns about the economic impact of the Brexit vote, and investors are starting to worry about the wider implications of what it all means. Economic data has also dissappointed, with the latest construction figures and inflation numbers much lower than expected. It should also be noted that these recent figures although released now, are for the period before the referendum. Later this month economic data releases will start to filter through showing the real effect on the economy, which may mean the Pound will drop further as the month progresses.

Bank of England warn weak Pound is necessary


In today's BoE financial stability report and statement, Mark Carney said that the fall in the Pound would actually help ease the balance of payments shortfall, so the weak Pound is beneficial in some respects. Effectively he was trying to put a positive spin on the drop in Sterling, as its weakness is necessary to act as a stabiliser, said ING currency strategist Viraj Patel.

What next for the Pound?


Many think it's going to go lower. With the BoE recently hinting at an interest rate cut, the threat of a recession, huge political and economic uncertainty on the  horizon, I think the Pound has further to fall. HSBC and others have warned that GBP/EUR may drop to €1.08, and GBP/USD to $1.20.

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