Sterling exchange rates have seen further losses against both Euro and Dollar over the course of the trading week, as investors and speculators alike have made it clear there is a lack of confidence in the Pound at present.
With the cost of living crisis bearing down on the UK economy and a prolonged recession on the cards we have started to witness a move away from the pound and it appears that it is being treated much more like a riskier currency rather than a safe haven in the current climate.
With the energy cap being hiked once again and a further hike in the cards early next year, consumers are facing a really tough winter in the UK, and it is likely this will result in extremely tight purse strings and limited spending. When people on the street aren’t buying as many goods and services this tends to filter through to economic data and with the markets generally moving on expectations as well as fact, investors clearly don’t expect the UK economy to perform particularly well in the months ahead.
Let’s not get away from the fact that this problem is not concentrated on the UK, and will also impact the Eurozone and US, however the reason it is hitting the pound harder at present is that currently Eurozone data is holding firm and the Federal Reserve in the States are taking on an extremely aggressive approach to interest rates, leading to the Dollar becoming an attractive currency to hold.
The pound in fact was the worst performing major currency in August, and is close to testing yearly lows against both Euro and Dollar as I write this. If this trend continues then the pound could dip into the territory of being the worst performing major of 2022 within a matter of weeks.
Goldman Sachs have now predicted that inflation could peak at a whopping 14.3% in the UK and that the economy could contract by 0.6% in 2023, so the outlook as a whole is not great.
Analysts predictions from the banks have suggested the pound could drop as low as 1.11 against the Euro and 1.13 against the Dollar in the next three months, so if you have a large overseas purchase to make it may be prudent to start looking at the opportunities available to you.
Needless to say, the currency market can change very rapidly so you can never rule out the pound fighting back, all eyes will now be on the winner of the conservative leadership contest (Liz Truss now sat at 1-20 to win) and what the plans are from the new Prime Minister to tackle the problems set out above.
If you have an exchange to carry out, feel free to contact one of our experienced and knowledgeable traders to discuss the outlook in more detail, and we will be happy to help you negotiate this tricky market.
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