Pound hits lowest rate since ‘mini-budget’

GBPEUR Sees a Sharp Rebound with ECB Stimulus Plans

Yesterday saw the pound weaken further against the euro, falling to the lowest GBPEUR rate since the now infamous Liz Truss/Kwasi Kwarteng ‘mini-budget’. GBPEUR was trading at 1.1257 during the low of yesterday’s session.

The downward pressure on the pound begun a month ago now following the European Central Banks (ECB) decision to hike interest rates by 50 basis-points. The pound has lost 3.5% against the euro in the last 4 weeks.

A transfer of £100,000 is currently buying €4100 less vs a month ago. In contrast, the weaker pound presents a real opportunity for those looking to sell euros for pounds. €100,000 is buying £3100 more than a month ago. EURGBP is trading at 3-month highs.

What does this mean for rates moving forward?

The value of a currency is often driven by their central banks interest rate policy. The Bank of England have been raising interest rates for the last year to quell inflation which has also provided support for the pound. However, with the UK facing a recession, market commentators are expecting the BoE to slow down or stop their current rate-hike cycle. The banks slow down could come at a time when the ECB are continuing to hike their rates. Another ECB rate hike could drive the pound lower against the euro.

Tomorrow morning the markets will digest UK growth (GDP) figures for November. The expectation is for a contraction of -0.2%. A lower reading could weaken the pound further and a higher reading could provide a positive movement for sterling.

A positive signal for the pound could be provided by next week’s retail sales figures. Positive retail sales figures are not conducive with recessions, however, Tesco and M&S among other large retailers have reported strong sales in December.

The economic calendar is heavier next week with several key data releases coming from the UK that could affect exchange rates. If you have an upcoming currency requirement and would like to be kept informed by a market specialist, please feel free to contact me directly on [email protected].