Sterling Under Pressure on the Exchange (Matthew Vassallo)

Pound to Dollar Rate Shrugs Off UK’s Economic Woes

Sterling has come under further pressure during Tuesday’s trading, with the Pound suffering heavy losses across the board. This has been a regular trend since the turn of the year and I am not anticipating a sustainable recovery for GBP under the current market conditions. Why we have seen the Pound lose so much value in such a short space of time is being heavily debated and I will touch on the key triggers shortly. The catalyst for today’s drop was further poor economic data released this morning, in the form of UK Markit Services figures, which came out under expectation at 53.7. This caused the Pound to slip back below 1.25 on the exchange and this move was then intensified by better than expected Retail Sales figures for the Eurozone, which is always considered a key release by investors. This caused the markets to panic and investors have likely sold off large GBP positions, which has caused GBP/EUR rates to drop perilously close to 1.24.

As mentioned GBP/EUR rates have been on a downward spiral since the turn of the year. Ironically it was the overvaluation of the Pound for much of 2015, particularly against the EUR and to some extent the USD, that has caused many of the issues facing the UK now. The pound was driven up due to the complete lack of confidence in the Eurozone and the decision by the FED not to raise interest rates until late last year. GBP/EUR was pushed north of 1.40, whilst GBP/USD rates were trading comfortably above 1.60 for a sustained period. When you look at the effect this had, particularly on GBP/EUR it easier to understand why we have seen such a drop.

The fact the Pound was so overvalued caused our exports to fall, which in turn put pressure on our Construction & Manufacturing sectors. The Bank of England (BoE) then had to change their stance and have been actively talking down the UK recovery, with the hope this would artificially drive Sterling’s value down and boost that facet of our economy. We have also seen a run of very inconsistent economic data and this has caused investor confidence to dissipate and add to this the on-going debacle regarding the UK’s future participation in the EUR and the upcoming referendum in June and it becomes easier to digest.

I feel it is likely things will get worse before they get better and whilst the current trend won’t last forever, the key question is where we finally see GBP bottom out. It is not beyond the realms of possibility that Sterling’s value will continue to tumble up until the referendum and then we will be questioning how much of a recovery we will see. I would look protect myself against further losses and gauge any longer-term positions based on market developments over the coming months.

If you have an upcoming GBP currency requirement and would like to be kept up to date with all the latest market developments ahead of your transfer, or simply wish to compare our award winning exchange rates with your current provider, then please feel free to contact me on 0044 1494 787 478. You can ask one of the reception team for Matt, or alternatively I can be emailed directly on [email protected]