Wednesday, 17 August 2016

Will Sterling keep dropping against other currencies?

The past week has not been a good one for the Pound, with Sterling/Euro exchange rates falling close to the lowest in around 5 years. The charts below show the GBP/EUR and GBP/USD rates over the last month:
    GBP/EUR
     GBP/USD

Why has Sterling continued to fall?


As you can see from the graphs, the general trend is a weakening of the Pound. Against the Euro, we're now pretty close to the lowest it's been in 5 years. Against the US Dollar, we're around the lowest it's been in 31 years.

As anyone following the currency markets will know, the EU referendum result has caused a huge amount of uncertainty for the UK economy. In recent weeks the Bank of England have warned of further weakness in the economy, and it's also likely they will have to cut interest rates again before the end of the year. We have also seen figures showing that the housing market is slowing. The Euro has also gained slightly against the Pound due to strong German GDP figures, showing that Europe's largest economy is growing at its fastest pace in 5 years.

There have been a few positives however, with UK inflation higher than expected, and the UK unemployment claimant count this morning coming in much better than expected. The numbers however haven't done much to lift exchange rates.

Will Pound/Euro exchange rates fall further?


I think there is a good chance rates could fall further still, and it's all to do with the continued uncertainty. The Prime Minister isn't likely to invoke article 50 until next year, meaning it could be 2019 before the UK actually leaves the EU. Once article 50 is invoked then there are 2 years to negotiate our exit, and until then nobody knows what leaving the EU will actually mean for the economy. Investors hate uncertainty, and until there is a clearer picture of what 'Brexit' means, the Pound is unlikely to make a significant recovery.

What can you do if you need to buy or sell the Pound?


There is unfortunately no way to predict or forecast what will happen with exchange rates. Those that need to buy Euros can consider using a 'Forward contract'. This is where you can guarantee the current rates for up to 2 years by  lodging 10% of the total to be converted. This protects you against a further decline in the rate and helps budgeting for property purchases abroad.

Clients that need to convert a foreign currency back to Sterling however are looking at very attractive rates. They may improve further, but this is no guarantee. In this scenario you can use a 'Stop Loss' order, which allows you to continue taking advantage of gains in the rate, but if the market starts moving against you, you have a level at which your rate is fixed. This means you don't lose out too much if the Pound does start to regain some strength.

Can we help you with more competitive rates of exchange? 


We are one of the UK's leading foreign exchange brokerages, and source rates of exchange for private and business clients that are much better than your bank or existing broker may offer. We can help anyone looking to convert more than £5k+ and have the currency wired to an account by telegraphic transfer, perfect for this buying or selling property, or businesses that make international payments.