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!