Pound tests historic lows : Will this sterling weakness continue?

GBP EUR Soars Again After UK Employment Boost

Sterling has continued to trade weakly since Monday, although we haven’t retested the absolute lows seen on Monday. At that time, GBPUSD levels hit 1.03, and GBPEUR 1.07, as the Asian session with thinner trading conditions saw the pound aggressively sold off and those record points reached.

How would I have been able to trade at these rates is a very valid question, for any clients looking to maximise their currency potential from such scenarios. One key piece of weaponry to allow you to trade at such levels is the ‘Limit’ Order, where you set an automatic trade at a particular rate.

We had many orders trigger on Monday morning following the drop for sterling, where well-prepared clients had set these orders in advance to give them the best chance to capitalise on the movements.

Sterling appears far from out of the woods when you consider the prospect of recession and rising inflation ahead, although expectations the Bank of England is going to be raising interest rates much more sharply than previously forecast, have seen the pound rising.

We are in a very strange situation where the Bank of England is fighting against the Government, in both having almost completely polar objectives for the economy.

Liz Truss and Kwasi Kwarteng are very much focussed on growing the economy, with a series of tax cuts to encourage the economy to reboot and lift off, shaking off many years of stagnant growth and low productivity.

On the other hand, the Bank of England are seeking to cool the economy, to help slow down the feature of the economy in 2022, high inflation. High Inflation is damaging to an economy and limiting high inflation is an important part of the Bank of England’s mandate, with the target at 2%, the last reading was 9.9%, so we are well above this.

The Bank of England next meet in November, but there is speculation they will have to meet sooner, in order to force an emergency rate hike. For now, the mere expectation of higher rates has had an effect on the pound and reversed some of Monday’s sharp losses. But, with Kwasi and Liz still set on their plan to stimulate the economy, there could well be more conflict ahead between the Government and the Bank of England, that ultimately spooks the FX markets and causes a fall.

If you have an FX transaction to consider involving the pound and wish to better understand the latest news and forecasts, please get in touch with me directly on [email protected].

I will be very happy to share my 13 years of FX dealer and international payments experience with you, providing some insight into strategies to help you manage your FX risk and plan for the future.