Will the Pound drop now that the UK is in recession?

GBP USD Exchange Rate Plunges to Lowest Since September 2020

Much of the talk regarding the Pound’s value and the performance of the UK economy this month had been geared towards last week’s GDP release for Q4 of 2023.

It’s now official that the UK is a shallow recession, and there was a drop in the Pound’s value when the official figures were released as the drop in economic output in Q4 was higher than expected.

The markets had expected to see a -0.1% drop quarter-on-quarter, but the official reading came out at -0.3 confirming the recession and also a slightly deeper recession than expected.

Since last Thursday’s release the Pound has managed to claw back the losses and has begun the week in quite a strong fashion, with GBP/EUR back above 1.1700 and GBP/USD still trading comfortably above 1.26.

Personally, I think the Pound hasn’t been heavily impacted by the worse than expected GDP readings and official recession being confirmed as a rebound in the economy is expected.

The markets will be more focused on the more recent economic updates now as they could impact when the Bank of England will begin cutting interest rates.

Inflation data last week was lower than expected, putting pressure on the BoE to begin cutting rates sooner than later. Retails Sales last week also came out much high than expected which is perhaps why the Pound has recovered last Thursday’s losses so soon.

This week offer another insight into the UK economy’s heath as PMI readings will be released on Thursday. They will cover Services and Manufacturing data with Services being the key for the UK economy. Another reading above 50 is expected which demonstrates growth in the UK’s most important sector. The January reading was 54.3 and 54.4 is expected this time which will be positive for the UK economy and could give the Pound a boost if the reading is above this.

If you would like to discuss the Pound’s recent and potential movement moving forward, please feel free to get in touch with me directly on [email protected] and I will be happy to discuss your plans. We offer very competitive quotes and market insights.

Could the Pound be influenced by this week’s busy economic calendar?

After a fairly muted start to 2024 for GBP exchange rates, the outlook what which factors could influence the currency moving forward have become clear.

The Bank of England, European Central Bank and the Federal Reserve Bank in the US are all expected to begin cutting interest rates later this year. But the BoE differs in that the cuts are expected to begin later this year, and the number of cuts is expected to be slightly less.

This is due to the inflationary pressures within the UK remaining elevated compared to the UK’s peers.

Moving forward, data releases which show signs of inflationary pressures expanding or contracting along with the UK’s economic health could influence the BoE’s monetary policy changes and therefore the Pound’s value.

A busy week of economic data releases is due this week which could influence the Pounds value, especially if the data releases deviates from the market expectations.

Later today the Governor of the BoE, Andrew Bailey will be speaking at Loughborough University. He voted in favour of keeping rates on hold at the BoE’s last vote and as ever his choice of language when describing the economy will be closely followed.

Monthly wage data is due for release on Tuesday and Inflation data will be released on Wednesday in the form of CPI. UK GDP figures are due out on Thursday. Thursday’s release will determine whether the UK has dipped into recession or not so GBP exchange rates could come under pressure if the growth in Q4 of 2023 was lower than expected.

Retail Sales will then be released on Friday which is an economic update that can cause volatility for the Pound too.

Generally speaking, better than expected data released could push back the BoE’s plans to begin cutting rates and could see the Pound strengthen.

If you’re planning on making a currency transfer and would like to obtain quotes, market updates and opinions, please feel free to contact me directly on [email protected]

GBP exchange rates remain strong as interest rates remain at 15-year high

GBP AUD Consolidates with UK Employment Due

Last week the Bank of England voted to keep interest rates on hold for the 4th consecutive time. Whilst this was expected in the lead up to the decision, we have seen a change in the voting patterns of the 9-voting members.

The rate will remain at 5.25% and the vote was a 6-3 split. Interestingly one member of the BoE’s Monetary Policy Committee voted for a cut so could this be the start of a change of approach and could this impact GBP exchange rates moving forward?

For some time now, the expectation from financial markets is that the between the Bank of England, European Central Bank and the Federal Reserve Bank in the US, it will be the BoE that will keep interest rates at elevated levels for the longest.

Between now and the end of the year, cuts of 0.75% is expected from the BoE whereas for the ECB and the FED the predictions are for in excess of 1%. Any deviations from these expectations carry the possibility of influencing the underlying currencies, so keep an eye out for any changes to the current outlook.

Inflation data along with the economic health of each economy will be important for this outlook, and the voting patterns from the Central Banks along with commentary and speeches from key personnel within Central Banks can also cause market reactions. For example, just yesterday evening in a pre-recorded speech US Fed Reserve Chairman Jerome Powell suggested that the markets are pricing in too many cuts from the Fed this year.

The US Dollar has strengthened off the back of these comments.

Economic data releases this week are light which will give the markets time to digest last week’s updates.

If you would like to discuss an upcoming currency transfer, exchange rates and timings do feel free to get in touch with me (Joe) directly on [email protected] and I will be happy to offer opinions along with competitive exchange rates.

Could this week’s economic updates push the Pound higher?

Looking over a 1-month chart for the Pound to Euro exchange rate, the Pound has gradually climbed in a consistent trend against the Euro.

There has been little volatility, but the GBP/EUR pair have climbed from 1.1500 up to 1.1725 in the space of 1-month, which is an almost 2% increase.

At last week’s European Central Bank (ECB) interest rate decision and statement afterwards ECB President Christine Lagarde opted not to push back against expectations of a rate cut in the first half of the year. The markets are pricing in a rate cut from the ECB as soon as April which is earlier than expectations for the Bank of England.

The Euro weakened because of the language used by Lagarde, and I think we can expect to see further price fluctuations for the GBP/EUR pair if the Bank of England offers indications to when they think rate cuts are likely to begin.

The Bank of England’s first monetary policy meeting of the year will take place on Thursday. At the time of writing the BoE is expected to cut interest rates by 100 basis points this year, whereas the ECB and the FED Reserve in the US are expected to cut rates by 150 basis points.

Sterling has strengthened as a result of this prediction, so any changes to this outlook could influence the Pounds value.

At the last meeting the voting pattern stood at 6 voted to hold with 6 voting to hike rates. If we begin to see a change in sentiment this could also be picked up by the markets and cause a reaction in the Pounds value.

The Pound has begun the week trading just 0.5cents from its annual high against the Euro, and around the highest levels against the US Dollar since late July.

If you would like to plan around Thursday’s key update, and discuss exchange rates with me directly you can email me on [email protected] and I will be happy to offer you some insight regarding your transfer.

Will GBP exchange rates remain strong despite recession fears?

Last week saw the Pound to Euro break above the 1.1650 handle for the first time this year, after remaining rangebound between 1.1600 to 1.1650 since the start of 2024.

The GBP/EUR pair have begun the week above 1.1650 even if only just, so the trend for the pair is gently climbing despite there being concerns for the UK economy falling into recession.

Retail Sales figures for December were released last week and came out below expectations, increasing the chances of an official recession in the UK.

Although economic data this week is light, Wednesday’s release of PMI data will be followed closely by financial markets and especially the Services PMI figure.

PMI readings are a measure of the prevailing direction of economic trends, and it’s based on a monthly survey of supply chain managers.

On Wednesday there will be releases for Manufacturing, Industrial and the Services sector. The Services sector will be key as this sector covers around 70% of the UK economy. A release above 50 indicates growth in the sector, and the last reading was 53.4. A slight increase to 53.5 is expected this time.

The Pound could be influenced by this release, especially if the figure released is below expectations.

Thursday’s European Central Bank (ECB) interest rate decision and monetary policy statement could also have an impact on the GBP to EUR pair. No changes are expected to be made but the language used could offer insight into the ECB’s monetary policy plans through 2024.

The President of the ECB, Christine Lagarde recently suggested a cut could come as soon as the summer.

If you would like to discuss timings and exchange rates on a currency transfer you’re planning on making, please feel free to contact me with an outline of your plans. You can email me directly on [email protected] and I’ll be happy to offer my opinion and exchange rate examples.

When will the Bank of England begin cutting interest rates, and how could this impact GBP exchange rates?

GBP EUR Exchange Rate: Weekly Review July 16  

The Pound traded within a very tight range last week, as currency markets have begun the year in quite a muted fashion.

There was a range of just 115 pips for the GBP to EUR exchange rate, and the EUR to USD exchange rate traded within a range of just 80 pips. The EUR to USD exchange rate is the world’s most traded currency pair so this demonstrates how quiet markets were last week.

Throughout much of the week the markets were awaiting the November GDP figures as there are concerns that the UK economy could slip into recession. In Q3 of 2023 the UK economy shrunk, and in October the economy also shrunk by 0.3%. The November reading was higher than expected, with Friday’s release showing growth of 0.3% so all eyes will be in the December figure.

For an official recession to take place, there needs to be two consecutive quarters of contraction within the economy so it’s all coming down to the December figure. There could be a knock-on effect to the Pound’s value if there are concerns about the economy, especially with the Pound trading towards the top end of its annual ranges against both the Euro and the US Dollar.

Another topic that could impact the Pounds value remains interest rates and when the central banks are expected to begin cutting interest rates.

As it stands, the BoE is expected to begin making amendments to its current 15-year high interest rate in the 2nd half of 2024. Initially the markets priced in changes for early 2025 but the expectations have been brough forward. A total of 125 basis points are expected to be cut throughout 2024, so expect any amendments to this amount to potentially impact the Pounds value.

If you’re planning on making a currency exchange involving the Pound or any other major currency, please feel free to register your interest with me on [email protected] You can provide me with an outline of your plans and I will be happy to offer insight and quotes to try and help you with timings and to save money.

Could the Pound fall in value if the UK officially slips into recession?

Despite being a quiet week for economic data releases, on Friday there is arguably one of the most important data releases for the UK economy so far in 2024 as GDP figures for November will be released.

In the third quarter of 2023 the UK officially contracted after revised figures showed a slight drop in economic output of -0.1% across the 3-month period of July, August and September.

For the UK to into an official recession there must be two quarters of consecutive declines. With the UK economy getting off to a weak start in October, I think the markets will be watching the November figure very closely.

The November expectation is for a climb of 0.2%. The October figure was -0.3% so if there was positive growth in November then it will all come down to the December release.

An officially slowing economy could weigh on the Pounds value. At the time of writing the Pound is trading within 1.75 cents of its annual high against the Euro, and although it’s not quite as strong vs the USD, it’s still trading much closer to the annual highs than the annual lows.

Outside of the growth figures I think the Pound will continue to be influenced by interest rate expectations. The Bank of England (BoE), the European Central Bank (ECB) and the Federal Reserve Bank in the US are all expected to begin cutting rates this year by between 100 – 125 basis points.

Any divergence from these expectations could impact the underlying currency values, as the cuts are often priced into the market before they’ve taken place. The Pound has benefited as the BoE is expected to keep rates higher for longer, so any changes from this expectation could have a knock-on effect for GBP exchange rates.

If you would like to discuss any of the topics in this report, or exchange rates regarding an upcoming transfer you plan on making, please feel free to contact me directly. You can email me on [email protected] with an outline of your plans.

Could a UK recession apply further downward pressure on the Pound?

Last week the Bank of England voted to keep interest rates on hold at 5.25% as expected by the markets.

Financial analysts now believe that the Bank of England has completed its current cycle of interest rate hikes with the attention now turning to how long the BoE will keep interest rates at the current elevated levels.

The Pound remained quite flat against the Euro as a result of the decision, but due to some US Dollar weakness the Pound to US Dollar rate actually climbed at the end of the week.

At the time of writing, GBP/EUR is trading at 1.1540 and GBP/USD has climbed up to 1.2400.

The voting pattern from the BoE monetary policy committee was clearer this time, as the decision to keep rates on hold was voted for by 6 members to 3 this time round. Previously, the vote was 5 to 4 so there appears to be a clearer direction regarding monetary policy now.

On Wednesday, the governor of the BoE, Andrew Bailey will be speaking and I would expect markets to follow his tone very closely to try and gauge the BoE’s plans moving forward. Comments alluding to when the BoE could begin to start cutting interest rates could impact the Pound’s value, and the current expectation is around Q3 of next year.

On Friday this week perhaps the key economic data release is due, as GDP figures are due for release. Both MoM (Month on Month) and QoQ (Quarterly) figures are due and with some analysts believing that the UK is about to enter a recession, these figures could also impact GBP exchange rates.

The quarterly figure is expected to be the key one here, with a contraction of 0.1% expected to be released.

Will comments from the Bank of England this week help support the Pound?

Another week without many economic updates out of the UK is on the cards this week, with the main focus being the Bank of England’s interest rate decision on Thursday.

The Pound suffered last week, losing value against both the Euro and the US Dollar as the lack of data released from the UK left the Pound vulnerable. Aside from the USD and Euro strengthening against the Pound, the Pound is also vulnerable at the moment due to global risk sentiment declining due to the issues in the Middle East.

With stock markets also dropping as a ‘risk off’ attitude is adopted by financial markets, the Pound is likely to see added downward pressure as its one of the most vulnerable major currencies when it comes to market sentiment.

With little data due for release this week, Thursday afternoons Bank of England (BoE) meeting will be in the spotlight.

No interest rate increases are expected this week so rates should remain at 5.25%. There are no other hikes expected from the markets during this cycle either so the focus will be on the voting pattern of the 9-voting members, and also the comments from the BoE Governor Andrew Baily shortly after the vote is made public.

The Pound is close to the YTD (Year to Date) low against the US Dollar currently, trading around the 1.2100 level.

GBP to EUR has also come under pressure recently, and it’s dropped roughly 3-cents from the YTD high in July so the Pound id clearly in a downward trend against the major currency pairs at the moment.

Will a change in outlook from the Bank of England cause the Pound to fall?

Sterling exchange rates have dropped off since the Bank of England (BoE) opted to pause interest rate hikes.

The last increase was made on the 3rd of August and the BoE kept rates at this level on the 21st of September which came as a surprise to the currency markets, and resulted in a slight weakening of the Pound against the Euro, US Dollar and most other major currency pairs.

The next opportunity for the BoE to amend rates will come on the 2nd of November, and according to the latest Reuters polls the expectation that rates will remain on hold. There is currently an 80% chance that rates will remain on hold according to the latest polls on Reuters.

These predictions can change in the lead up to the announcement as we witnessed in September, so it’s worth following this topic if you’re trying to second guess the Pounds next move.

Across the past year the Pounds movements are mixed when compared with the US Dollar and the Euro.

Despite softening recently, the Pound is just a couple of cents from the annual high against the Euro.

The Pound’s performance against the US Dollar is in contrast with GBP/EUR as it’s lost around 9% against the US Dollar since the height of summer.

On Wednesday, inflation data will be released which could impact the Pound’s value if the figures released deviate from expectations. UK inflation remains above 6% which is well above the BoE’s target of 2%.

Inflation data along with economic growth data is now being watched closely, to try and get an insight into the BoE’s next moves regarding monetary policy.

Recent Posts

None of the information contained in this website constitutes, nor should be construed as financial advice. It should not be interpreted as a solicitation to offer to buy or sell any currency or as a recommendation to trade.

Where interbank exchange rates are referenced within the website these should only be used as a guide on the performance of a market. These rates are not indicative of our exchange rates – please contact us for a quote.