How Will UK GDP Affect Current Sterling Exchange Rates?

Pound to Dollar Rate Slides to 1.38

Sterling exchange rates have had a roller-coaster ride in the last few weeks suffering major losses against some currencies but big gains against others.  Most of the movement has been caused by the well publicised Eurozone crisis, with GBP strengthening against a weakening Euro (and Swiss Franc) and losing ground against the Dollar as it gains from a flight to safety.

Whilst it looks as though the problems in Europe are unlikely to disappear overnight, with news the Spanish bond yields went back through 7% yesterday, although the current deadlock between Germany and the rest of Europe is unlikely to be allowed to continue indefinitely otherwise the single currency will already have been driven to the brink.  With this in mind, I would start looking towards ever increasing signs that the UK is in trouble.

Almost every growth forecast made within the last two years for the UK has been proved to be wholly inadequate, with figures continually being revised down amidst claims that the Euro crisis was dragging down the pound.  The excuse has been that if Europe puts it’s house in order then the UK will get back on the road to a slow but steady recovery.  Unfortunately the longer the crisis has dragged on, the worse the outlook for the UK has become and all deficit reduction plans have been wasted as the growth forecasts the projections were based upon haven’t materialised.

One of the benefits of a previously weak pound was that it helped a government strategy of an export led recovery with Europe being the UK’s biggest export market.  However this year has seen sterling strengthen considerably against the Euro and we are now back to levels not seen since 2008!  Combined with the recent horrendous weather cutting back retail spending, I expect tomorrow’s latest GDP figures to be very weak indeed.  Certainly I would look to target Wednesday if you are looking to sell Euros or sell Dollars as a possible short term boost- the key for me will be how bad the figures are and will the act as a catalyst for the Bank of England to further intervene to kick start the economy; a move which would no doubt weaken the pound either by yet more QE or even an interest rate cut.

Also, many people are already hailing the London Olympics as a cash cow for the UK economy as visitors will spend millions over the games.  Again I am not convinced that the short term spending will do much when compared with other Olympic aftermaths which have tended to provide an expensive hangover (think Athens and Sydney, whilst China could simply drive through the costs).  The recent turn in the weather may well help, but in truth I think the regionalised spending around London will do little to help other struggling regions in the UK and as with previous forecasts, the UK weather and sporting events don’t always provide the GDP boost that some are banking on.

If you want to exchange currency via a transfer to get the best rate, whether that be buying Euros for a property purchase, or selling Dollars from a business invoice, please feel free to get in touch and see what we can so- simply e-mail Colm at [email protected] and I would be happy to help (no hidden fees or commissions and the information may well save you a small fortune).