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Pound Sterling Weakness – Why Is The Pound Dropping So Much?

By
Daniel Wright
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Sterling exchange rates have taken a huge hit over the course of the days trading, as the new chancellor Kwasi Kwateng’s mini-budget appears to have knocked the pound totally out of fashion.

The pound has lost over 350bps against the Dollar sitting in the 1.08 territory, whilst dropping to 1.12 against the Euro and hitting the lowest level against the Swiss Franc since 1974 sitting in the 1.06s.

There is now talk of an intervention and whether HMT will make an attempt late on Sunday night ahead of the Asian markets opening to stabilise the currency, should this not happen or not have the desired effect the Bank of England may need to step in again and look at an emergency interest rate hike less than a week after they raised rates by 50 basis points, which in all honesty wouldn’t look great.

Sterling really is taking some big blows out in the financial markets and it is tough to see how the pound will fight back, the lower Sterling exchange rates go, the more costs will spiral and the bigger the potential problem, so we are stuck in a really tricky situation of late.

I like to monitor the pound against a basket of major currencies and today was the biggest drop I can remember since the referendum, with a loss of over 10% in value against a basket of major currencies.

So where does this leave you if you have a large purchase to make be it personally or for your business overseas? The key in the coming weeks is being agile and ready to act.

We could still see a bounce back should we have an intervention or a rate hike, but you must also exercise caution that if this trend continues and you keep holding on it could be an extremely expensive decision.

If you have foreign currency to exchange back through sale of goods with your business or a personal property sale then you are probably reading this feeling pretty happy as your foreign currency has just become worth a lot more, but do be cautious not to get caught in the vicious circle of waiting and waiting then finding it bounces back and it is too late, this is a common occurrence with people in my experience.

I have been helping people move money around the world for 15 years now, if you would like to discuss the pound’s sudden loss of value or chat about a potential trade you need to carry out then feel free to email me, Daniel Wright on daniel.wri[email protected] and I will be happy to get in touch with you personally.

You can also set rate alerts, follow the markets, request quotes and view graphs/charts here on Pound Sterling Forecast so feel free to take a look around the site and we hope it is helpful.

Will the pound weaken again in October?

By
Jonathan Watson
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The pound suffered some particularly volatile movements last week, with GBPEUR rising and falling 7 cents, and GBPUSD 9 cents. This relates to around 6% worth of movement on GBPEUR and 8% on GBPUSD.

Such movements just highlight how volatile currency can be, and indicates why any clients looking to buy or sell the pound should be very conscious of the current market, and some of the particular attributes and behaviour of a currency, that can influence such sharp rises and falls.

This week the Conservative Party Conference will see Liz Truss deliver the closing speech on Wednesday which could be a market mover. Whilst investors were forewarned and had some expectations of the ‘mini-budget’ that took place the Friday before last, the extent of the volatility did appear to take many by surprise.

In a sign of the less than coherent narrative coming from Downing Street, Kwasi Kwarteng has this morning announced he will be reinstating the 45 p, top rate of income tax. This is following a series of public displays of concern from MP’s and cabinet members alike.

Kwasi and Liz have shown they are willing to listen to their own party, and also the public, but does this not also display a weakness and uncertainty over the confidence they supposedly had in their economic agenda?

The pound has been weaker because of the economic uncertainty over the new government’s plans. The huge increase in public spending, via tax cuts is widely seen as an ill move considering the delicate nature of the economy at present.

Investors are concerned that the UK is taking too big a risk with the tax cuts, and a more sensible approach on fiscal policy, to help balance the books is preferable.

Only time will tell, but with the Bank of England being forced to react to the potentially inflation boosting tax cuts, there continues to be a loud conversation around not only the conflict the government now has with the Bank of England, but also whether the government has got the UK on the right path.

Can we rule out further sterling weakness? For now, we definitely cannot as the currency markets react to the unfolding of this ever changing situation.

As well as the Liz Truss speech, we could expect other comments from government or MP’s this week, any of which might influence sentiment towards the pound.

We also have a whole host of new economic data as it is the beginning of a new month. A key piece of news this week will be the latest ‘US Non-Farm Payroll’ data, and unemployment report.

The US dollar has a big influence on the pound and also the Euro, and movements on the back of this news can influence EURUSD rates, which in turn often affect GBPEUR and GBPUSD levels.

Are you planning any currency purchases in October, buying or selling the pound? Will the pound weaken in October is a very valid question, and we can share with you the latest news and sentiment to help with any decision making over your FX payments.

For more information and to discuss strategy for any transactions you are considering, please contact me Jonathan on [email protected]

Thank you for reading and we look forward to hearing from you.

 

 

 

 

Sterling Hits Fresh Highs! Will the pound continue to rise this week?

By
Jonathan Watson
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GBPEUR Forecast – Internal Market Bill Drives GBP Lower

The pound has reached fresh highs against both the Euro and the US dollar in the last week, as weeks of general malaise and negativity for the pound seem to evaporate. The key question for many will be, is this going to continue?

GBPEUR levels have risen to three-week highs of 1.1582 in the last 24 hours, where we had seen a low of 1.1326 two weeks ago. The move on GBPUSD is more impressive, with the near 1.20 hit recently, the highest since August, a three-month high.

The pound was weaker as many of us will know because of many issues, most fundamentally the policies of the Liz Truss and Kwasi Kwarteng administration in the UK which led to markets rejecting the pound in protest.

Sterling had clawed its way back as the Bank of England made clear they would be there to manage inflation through higher interest rates, although the prospect of interest rates rising too sharply was also sterling negative, in creating uncertainty and fear over the damage interest rates being too high would cause to economic growth.

Looking to the last couple of weeks, Rishi Sunak and Jeremy Hunt’s plans seem to be much better received although there is still plenty of caution. Rather than everything suddenly being rosy, it is more that their more measured and careful approach to public finances has calmed markets, where the previous Prime Minister and Chancellor combination scarred them.

Looking to the reasons behind the rise for the pound, we can return to some of the earlier points in my post, namely the big rise for GBPUSD. The US dollar accounts for over 60% of globally traded foreign exchange, and where we see large movements and changes in sentiment on the US dollar itself, it can influence movements on other USD pairings, including GBPUSD, which can then influence that paired currency against other currencies, ie GBPEUR.

The pound has therefore risen against the Euro and other currencies in part because of a broad weakening of the US dollar, which has dragged the pound up against other currencies, leading to its rise against other currencies like the Euro.

In answer to the question will the pound keep rising, it may well do. But it can be argued the UK fundamentals are the same they were a week or so ago, when the pound was weaker. The UK is still likely headed for a deep recession, the Bank of England has predicted that this could last for much of 2023.

Yes, the pound has risen, and yes, this might well continue. But it should be noted that the move higher is not because all of a sudden markets are much more positive over the UK’s economic outlook, it is also to do with more global factors. The risk of a move lower is therefore very present, and a majority of the FX forecasts we had surveyed did predict this over the coming months.

Understanding fully the reasons behind movements in the FX markets can lead to better information and in principle better more informed decisions. We can provide guidance as to what is happening, and in combination with a range of tools and options, help ensure you can approach the FX markets and any payments you need to make, with more confidence.

To discuss any strategy relating to a currency exchange and what lies ahead next for the UK and the pound, please contact me directly on [email protected]

I have worked as an FX dealer for 13 years, and helped thousands of private individuals and businesses plan and mitigate their foreign exchange risk.

Sterling exchange rates continue to slide – How low can the pound go?

By
Daniel Wright
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GBP to EUR Forecast: Will Sterling See Further Losses Against the Euro?

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.

Click this link and let us know your requirement and we will be in touch to discuss your options in more detail.

Why Are Sterling Exchange Rates So Low? Why Is The Pound Dropping?

By
Daniel Wright
-

Sterling exchange rates have taken another huge hit overnight as the trend of weakness for the pound continued straight at the start of the open on the Asian markets last night.

The Pound dipped all the way down to the 1.02s against the Dollar and the 1.07s against Euro as investors and speculators rushed to drop the currency and this caused a great deal of weakness.

So why are Sterling exchange rates dropping?

Since the announcement of the mini-budget and Kwasi Kwarteng’s plans to cut taxes we have seen sterling exchange rates lose value quite significantly, the reason behind this is that investors do not fully back the plans and feel that the sheer level of Government borrowing required will cause damage in the future.

They believe that this approach isn’t sustainable and that we could find ourselves in some pretty hot water as an economy in the months and indeed years to come with the plans that have been out in place.

If you then couple this with the Bank of England being much slower and less aggressive regarding interest rates compared to other Central Banks around the world there is a feeling of fear that this time around the Government and Bank of England may have got their choices wrong.

Mr Kwarteng has added further comments over the weekend that this is not the end of the cuts and that he actually plans more, which has quite frankly spooked the markets further. Government bonds jumped by their highest increase on record on Friday, and with Sterling exchange rates dropping but Government bonds rising it presents quite a nasty recipe.

The lower the pound goes the larger the cost of living crisis for consumers in the UK too. We are great at services here in the UK and a large portion of our economy is made up from the service sector, financial services as an example, however, what that also means is we import a lot, with the pound now substantially lower than it was even a few weeks ago, the cost to buy in these goods and indeed a lot of our energy and fuel heading into the winter is spiraling out of control.

So we are faced with costs going up for business’s, consumers without that extra spare cash in their pockets and an expectation of a fairly long and challenging recession which is likely to last through 2023.

The Government have tried to stem this by putting more money into people’s pockets, but the expectation is that this could be like putting a plaster on a very deep cut, it likely needs a lot more care and attention than that, and just borrowing more and more is not going to be sustainable.

We have an extremely interesting week ahead and the markets could swing wildly just off the back of comments from members of the Bank of England, Politicians or anyone with direct involvement in this crisis, so you need to be fully prepared to act swiftly if you have an exchange to carry out.

Strangely, and to add a positive to this report we have had news that house prices are still rising in the UK with a 0.7% month on month increase reported by Rightmove today, the strongest pace in four months, so one area is still performing ok.

Later today we have Christine Lagarde testifying to lawmakers and being the Head of the European Central Bank we may see further indications on their plans to tackle inflation and what their next move will be on interest rates, so for anyone with an interest in Euro do expect some movement of the back on this.

If you are looking to make a large currency exchange in the coming hours, days, weeks or months and you would like to talk through the current sell off and what it means for you/what your options are, feel free to contact us here at Pound Sterling Forecast today.

You can email me (Daniel Wright) directly on [email protected] or you can click  this link and one of our team will get in touch in due course. Should you prefer to set up daily rate updates or to set a rate alert then feel free to do that within this site too.

I hope you have a great day, its going to be a volatile week!

Bank of England and mini budget – The impact on Sterling exchange rates

By
Daniel Wright
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 GBP EUR Higher After Inflation Hits Another High 

The Bank of England increased interest rates for the 7th time in a row by 0.5% to take the base rate up to 2.25%, which was the biggest single rate hike in years. This caused the Pound to fall briefly against both the Euro and US Dollar as there were some predictions that the Bank of England may have raised rates by as much as 0.75%. As this didn’t happen the Pound plunged almost immediately after the announcement but managed to reverse some of the earlier losses later in the afternoon.

However, as of Friday morning, the Pound has struggled against both the US Dollar and the Euro and we are due to have the announcement from the Chancellor later today which is likely to cause more movements for GBPEUR exchange rates as well as GBPUSD exchange rates.

Currently, the US Dollar is close to its strongest level in history vs the Pound highlighting the real problems that the UK economy is facing whilst in the midst of a cost of living crisis. Indeed the GBPUSD exchange rate is at its lowest level seen since 1985 creating some excellent opportunities for those people looking to exchange US Dollars into Sterling in the short term. I have personally seen a rise in enquiries of clients looking to move money from the US to both the UK and Europe

The mini-budget is due out later with Chancellor Kwasi Kwarteng due to announce online tax cuts as well as dropping the planned rise in corporation tax. The economy and currency markets will be waiting with baited breath to see the impact of the announcement so pay close attention to the statement later on today.

If you have a currency transfer to make and would like a free quote then contact me directly [email protected] I have worked in the industry for 19 years and I’m confident of being able to help you.

Pound hits record low against the US Dollar, and drops significantly against the Euro

By
Daniel Wright
-
GBPEUR UK election: Why haven't pound to Euro exchange rates fallen?

Yesterday was a very difficult day for the Pound as financial markets appear to have lost faith in both the Bank of England’s monetary policy and the new cabinet’s mini budget.

Last Thursday the new Chancellor of the Exchequer, Kwasi Kwarteng announced his mini-budget outlining plans for a raft of tax cuts. Then over the past weekend he pledged further tax cuts in order to try and reinvigorate the UK’s stalling economy and attempt to counter the increasing inflation rates not seen in decades.

His plans and comments have undermined confidence in the UK, and early on Monday morning the Pound dropped by almost 5% hitting an all-time low of $1.0327. There was also a significant drop for the Pound against the Euro, with the GBP/EUR rate dropping as low as the 1.08’s which is over a 6.5% drop in just the past month.

The drop against the Euro has left the GBP/EUR rate trading at the lowest levels since December 2020.

Will the Pound rebound from its current levels?

After such a drop financial markets and investors will wonder whether the Pound can recover from its current levels. Some financial forecasters believe the Bank of England will be forced to make an emergency interest rate hike to try support the Pound’s value.

Yesterday the BoE warned that it could hike by as much as needed and these comments appear to have given the Pound some support for now, with the selling off of the Pound halted for now.

Economic updates are likely to take a back seat whilst the pressure mounts on Kwarteng so soon into his new role. Political commentators also believe that the errors from Kwarteng and pressure on the Pound could seriously damage the Conservative Party’s chances of winning the next election.

Further political instability could potentially undermine the Pounds value as we’ve seen recently.

If you are looking to make a currency transfer either from or into the pound in the near future and you would like to talk through the options with me then feel free to get in touch. You can email me directly at [email protected] and I will be happy to have a chat with you about your specific situation.

You can also set rate alerts and sign up for daily emails via this site should you wish to be kept informed of the latest movements.

What to expect from GBP exchange rates in 2023?

By
Joe Wright
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GBP EUR: Halifax Sees Signs of Housing Slowdown

Looking back on 2022, GBP exchange rates had one of the most volatile years on record especially against the US Dollar.

After such a bumpy ride for the Pound you may expect to see less volatility for GBP exchange rates but with economic growth set to drop this can never be ruled out, especially at the beginning of the year.

To recap 2022, GBP/USD experienced its worst annual performance since 2016 which was an exceptional year owing to the unexpected Brexit vote which caught the currency markets off guard. GBP/USD also hit its lowest level in history last year when the pair almost traded as low as parity when cable (GBP/USD) dropped to 1.0350 in early September.

There were major falls for GBP exchange rates around this time due to the disastrous Mini-Budget. At the time Liz Truss was Prime Minister and Kwasi Kwarteng were the Prime Minister and Chancellor of the Exchequer with both having been replaced since. These changes (Rishi Sunak is now PM and Jeremy Hunt is the Chancellor of the Exchequer) have been welcomed by financial markets but the UK’s problems are far from over.

Sentiment towards the UK coming into 2022 had been positive as the Bank of England was the first major central bank to hike interest rates has inflation was steadily rising towards the end of 2021.

Inflation is now a very hot topic as the current rate exceeds 10% which is over five times that of the Bank of England’s target rate of 2%. This is forcing the BoE to hike interest rates to counter the increasing inflation levels, but this comes at a time of a cost-of-living crises and a prolonged recession being forecasted so 2023 could be another busy year for the Pound.

I predict that how the UK economy performs with year along with global sentiment is likely to influence the Pounds value moving forward. Improvements in global sentiment often boosts the Pounds value, and vice-versa.

Should you wish to discuss and plan a currency exchange involving the Pound, or any other major currency for that matter, please feel free to get in touch with me for insights and competitive exchange rates. We can also set up rate alerts for you too. You can contact me directly (Joe) at [email protected]

The Pound loses momentum, could next year bring further falls for GBP exchange rates?

By
Joe Wright
-

GBP exchange rates have cooled during the month of December, with GBP/EUR and GBP/USD both easing from the 3-month highs they begun the month trading at.

There had been a considerable upward momentum for GBP exchange rates after Jeremy Hunt became Chancellor of the Exchequer and reversed the questionable tax cuts made by the previous Chancellor. Rishi Sunak replacing Liz Truss also buoyed the financial markets sentiment towards the UK economy and this helped give the Pound a boost, but perhaps the honeymoon period is over and the impending drop in living standards as a result of rising inflation is beginning to impact the Pounds value.

Cable, which is the name for GBP/USD has eased from highs of almost 1.2450 just over a week ago has lost almost 4-cents during this timeframe.

At the same time GBP/EUR, which is often the main focus of our daily blogs has dropped from almost 1.17 and tested the 1.14 level this week and the mid-market level is trading just above this level at the time of writing.

The reality of increasing inflation and the drop in expected living standards next year which is likely to concern financial markets and potentially push the Pound lower as 2023 approaches. The Chancellor last laid out his economic plans in November and we know who that the next Budget will be held on the 15th of March next year. I expect economic data releases surrounding economic growth, inflation levels and economic plans laid out by the government to be followed very closely early next year as the markets will look to gauge whether the expected economic slowdown will be as deep as expected.

As the year closes economic data is relatively light but Thursday morning’s UK release of GDP is still worth being aware of. GDP covers economic growth and the 3rd quarter will be in focus with a drop of 0.2% expected. Any deviations from this level could impact the GBP, so please feel free to register your interest with our brokerage if you wish to be updated regarding any market movements.

If you plan on making a currency exchange, involving the Pound or between most major currency pairs, please feel free to get in touch for insights and competitive exchange rates. You can contact me (Joe) directly on jose[email protected] and I will be happy to offer my insights.

Pound jumps on expectations that Liz Truss will announce huge economic plan – Sterling strength against all major currencies

By
Daniel Wright
-

The pound has struggled to find many positive days in recent weeks, however, over the course of this morning we have seen sterling exchange rates creep up against all major currencies.

The majority of this can be put down to a minor shift in sentiment and that investors and speculators alike appear to have some confidence behind the expected economic plans being muted by new Prime Minister Liz Truss.

Expectations are for an economic package of £130 Billion to be announced in due course which would include the capping of energy bills (a huge talking point as discussed in yesterday’s post), bolstering economic growth (extremely important with a recession looming), and limiting inflationary pressures.

All of this support can only be deemed as a good thing presently but the devil will be in the detail, whilst the pound has received a slight uptick off the back of the initial words it is likely that the markets will be waiting to find out the true plans before we see what this truly means for Sterling exchange rates.

One area that may cause turbulence for the pound is that new PM Truss plans to review the Bank Of England’s mandate during her campaign, this will likely cause uncertainty for the pound as and when more information comes out as two of the biggest market movers for a currency can be political and economic uncertainty, and with a storm cloud brewing between the Government and Bank of England, this would likely cause both political and economic uncertainty so it is certainly one to watch out for moving forwards.

Anyone with an imminent trade should have a keen eye on the markets this week and be prepared for anything, as news on the plans for the new PM will continue to filter through over the course of the week causing volatility for the pound.

If you do not have time to watch the market (which moves by the second) then let us help you with that, we watch markets all day every day and have a variety of tools to help you avoid adverse market movements making your transaction more costly. Email me (Daniel Wright) today by emailing [email protected] and we will be happy to help you.

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