Wednesday, 8 March 2017

Budget provides some respite for weakening Pound

The Pound had been drifting lower today, briefly dipping below the €1.15 mark, however the Chancellors budget has given the Pound a lift due to an upward revision in growth forecasts. Usually we don’t see the budget have much effect on the currency markets, however with politics now the driving force behind exchange rate movements, this budget has bucked the trend.

We have now seen the downward move resume however (view live graphs here), and I still expect a move to the downside when Article 50 is triggered in the coming weeks. Once the Dutch and French elections are out of the way and assuming far right parties don’t win power, GBP/EUR is likely to head lower as the Euros strengthens and Brexit negotiations begin.

Will the Pound continue to fall?


I've been warning for some time that it was likely the Pound would start to fall away as markets get nervous about Brexit, and this is now starting to happen. GBP/EUR in particular has dropped from €1.19 to €1.15 in the last few weeks as economic figures are starting to show that the uncertainty about the upcoming negotiations are beginning to have an effect on the economy: Consumer spending is down, house price growth is slowing, and inflation is rising as a weaker Pound filters through to reflect the increased cost of imported goods.

Regular readers will know that I am fairly positive about the long term strength of the UK economy that in my view is likely to remain robust once we have exited the EU. However I do think there is a way to go before we reach the broad sunlit uplands; in the short to medium term it's likely that the Pound will weaken and exchange rates will get worse before they get better.

Protection against rate falling further


If you need to exchange Sterling for another currency in the next 3 to 6 months and don't want to see the rate continue to get worse, then you can lock in the current exchange rate for up to 2 years into the future by using a 'Forward Contract'. We purchase your currency thereby guaranteeing your rate, but you only lodge 10% of what you want to convert as a deposit, with the remaining 90% due when you want your currency to be transferred. It's especially useful for those buying property overseas, as it protects you against adverse exchange rate movements and allows you to budget effectively by knowing the cost of your property in GBP.

To find out more about Forward contracts, discuss the market, or just get a quick quote to see what rate we can offer you, click here or complete the form below.