Why is the Pound Losing Value?

GBP EUR Exchange Rate: The Week Ahead August 15th

The Pound has come under increasing pressure over the past few weeks and despite a slight realignment today, the general trend for the start of 2016 is certainly a negative one. The Pound has so far struggled to replicate the positive sentiment it had for much of last year and this is down to a number of factors.

GBP/EUR rates have dropped by approximately 9 cents from the highs of last summer and even over the past month, we have seen a drop from 1.40. Personally I feel we are now seeing a much fairer value on the pair, which was in my opinion, overvalued above 1.40.

One of the main catalysts for the improvement was the removal of much of the uncertainty that had handicapped any sustainable spike for the single currency. This came in the form of Greece and Cyprus amongst others and despite on-going concerns over current Eurozone inflation levels, the European Central Bank (ECB) have decided it is not necessary to increase their current Quantitative Easing (QE) programme to counter this. This led to improved investor confidence and I now feel the EUR will continue to find support around the current levels.

GBP/USD rates have headed South at an alarming rate and provided something of a conundrum for those clients holding GBP. The catalyst for this move was the US Fed’s decision to raise their base interest rate in December, which despite being widely anticipated, gave the USD an immediate boost. It was taken as a sign of economic strength by the markets and following further positive data from the US (including today’s Non-Farm Payrolls figure) and a downturn in UK data, it is easier to see why the Pound has lost so much value, relatively quickly.

Under current market conditions I do not expect it to rebound to the high’s we saw in 2015, against either the EUR, USD or AUD.

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