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What will 2023 Bring For Sterling Exchange Rates?

By
Daniel Wright
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Sterling exchange rates have dropped on the whole throughout 2022 and it is fair to say there are a number of quite obvious reasons behind the poor performance of the pound over the course of the year.

Here is a summary of GBP paired against a selection of major currencies and the movement since 1st Jan 2022 as an example.

GBP/USD -10.79%

GBP/EUR -4.97%

GBP/CAD -5.44%

GBP/AUD -4.69%

GBP/CHF -9.97%

All in all, the above suggests the pound indeed had a torrid time of it, most notably shortly after Liz Truss became Prime Minister and we saw a mini budget announced from then Chancellor Kwasi Kwarteng which ultimately cost him his job, but also knocked the pound for six, dropping to a 1985 low against the Dollar at one point.

We in fact had three Prime Ministers and four Finance ministers over the year, not a recipe for certainty and stability.

On top of this, the Bank of England have been fairly slow to act on raising interest rates in comparison to other Central Banks around the world, we are still yet to see if this move will pay off now that inflation is expected to start to come down, however what that has done is led to a flow of money out of the pound and into more rewarding currencies, such as the USD where the Federal Reserve have been aggressive in their interest rate hikes, thus making their currency more attractive to investors looking for a great return.

What will 2023 bring?

There is no getting away from the fact that 2023 will be a tough year for many and that the UK will likely be in recession for most if not the whole year, however it is also important to remember that the UK is not alone with this problem.

Equally the same can be said for inflation issues, cost of living, energy prices and the prospect of Covid poking its nose back into daily life more aggressively once again, virtually the whole world has these issues, the key will really be how they are dealt with and who can bounce back the quickest.

I would hope that this year the UK can avoid the political turmoil seen over a number of months in 2022, political certainty is one of the key drivers for the performance of a currency and there is absolutely no doubt the circus act that played out earlier in the year from Boris to Liz to Kwasi with many smaller parts played as well will have done nothing but hurt the pound and I still don’t believe it has truly recovered internationally because of this.

Investors however do seem to feel that Sunak and Hunt are a safer pair of hands, so should they avoid any drama in the coming year this should settle the pound a little and I believe this would give Sterling exchange rates the chance of a better year.

In terms of the economic issues that we are facing I would be a fool to say there won’t be moments throughout 2023 that will cause nerves for investors and speculators when it comes to the Pound.

We clearly will have a squeeze on everything, the person on the street already has less in their pocket and that seems like it may only continue, this will in turn hit retailers and could cause a domino effect on the UK’s economic performance as a whole.

Many may not have felt the interest rate squeeze on their mortgage yet but there will be a lot of renewals coming up in 2023 which could cause further issues for households and house prices as a whole are expected to come down.

Bills on the whole for everyone are going up whether it is heating your home, filling up your car or getting your weekly shop everything is becoming tougher and there are many in the UK that are struggling already, so I feel the first few months of 2023 could continue to be a tough period for sterling exchange rates, as it is unlikely consumers will be flying out of the traps to spend in early 2023 if anything it could be time to batten down the hatches and to get to Spring.

From Spring onwards it wouldn’t surprise me to see people out spending again, if only a little. Heating will be going off, that British attitude of keep calm and carry on will likely play its part and I would hope that 6 months of political stability might start to draw investors back in.

Despite the challenges the UK faces as a whole there is a huge amount going for it. During and after the last big recession in 2008 the UK bounced back considerably well and outpaced all other members of the G7, so it does show that historically the UK can bounce back and bounce back well, so this will all being well give investors confidence to look to the pound, especially whilst it is what could be deemed undervalued and it would not surprise me to start seeing investors position themselves for a Sterling recovery later in the year.

Morgan Stanley recently published that they believe the pound would be in their top ten surprises of 2023 and expect Sterling strength, you can find many other economists arguing the opposite but I tend to agree with Morgan Stanley on this one.

My expectations are of a fairly bleak and challenging winter further pushing the pound only to see a recovery as the year progress, albeit it is really hard to know for sure what is around the corner in the currency markets, this is where I feel things could pan out for the pound in 2023.

Currency exchange to carry out in 2023?

Do you have a large currency exchange to make in 2023, for your business or buying/selling an overseas property?

Do you move money regularly and have you not compared rates and service recently?

Here at Pound Sterling Forecast we have been helping clients move money internationally for over 20 years, we pride ourselves on the very highest level of customer service and it goes without saying our rates are highly competitive against banks, brokers and the self service apps.

Feel free to contact us directly on [email protected] should you wish to find out a little more about how we can help you, or if you would like access to our trading team who can discuss an individual situation you have and to directly tailor or research from multiple analysts on how the market may move for you, so that you can maximise your money.

If you simply would like to request a quote to see how we compare against your current choice to move money then this can be done by clicking this link and we will be in touch in due course.

I wish you all a Happy New Year and a fantastic 2023.

Red hot week for economic data, as temperatures across the UK plummet

By
Daniel Wright
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Things have been looking brighter for the pound in recent weeks and the pound finished last week strong, after suffering a near two and a half cent (1.2345 to 1.2106) slide against the greenback (GBP/USD) from Monday to Wednesday. The pound has benefited from an improved ‘risk on’ appetite in recent weeks and responds well to positive news. Cable finished the trading week on the 1.23 handle.

The positive news in question relates to recent comments from US Federal reserve chair Jerome Powell’s comments around a slowdown in the rate hiking cycle in the US. A 50-basis point hike was almost confirmed by Powell in Wednesday’s latest Fed policy meeting, a reversal from the recent string of 75bp hikes. The Fed are having to deal with a dip in the Inflation levels in the US. Recent data announcements for US inflation slow a drop in previous levels of inflation. Ultimately this has caused the Fed to slow down their previous 75bp bullish approach to rate raises.

The pound along with stocks have been put under pressure by the continual weight of US interest rate hikes throughout 2022, so this slight change in tone gives support for the pound. The relationship between the pound and the stock market is one to keep an eye on. The pound is known to have a positive relationship with the S&P 500, which is known as the benchmark for global investor sentiment. When investor confidence peaks, more money flows into the UK thus creating a demand for GBP. Traditionally the UK suffers from a current account deficit, as an island nation we import more goods than we export so buy more foreign currency than we earn in GBP. Greater flows of currency into the UK, will typically see the pound rally as the current account deficit is ‘plugged’.

In addition, China has recently announced a relaxation of strict COVID-19 protocols across the country. Zero-COVID Protocols have been in place across China for almost 3 years since the first outbreak began in early 2020. This change in approach from the second largest economy has given a small change in tone to investor confidence, which in turn supports the pound.

Against the Euro the pound was stuck within 1 cent range (1.1673-1.1571) throughout the week, with the pound again finishing the week strong with a rally closing the week nicely for Sterling. The pound finished the week at trading at 1.1670.

The week commencing 12 th December is a data heavy week across the world, this morning GDP figures for October in the UK were announced with a 0.5% reading for the UK released, a slight upturn in the 0.4% reading forecast. An uplift from the -0.6% recorded for September. Nevertheless, there are still stark warnings from the Chancellor Jeremy Hunt, that the UK faces a recession. The UK recorded a -0.3% growth figure for the most recent quarter, which means should this current quarter provide negative growth we will officially be in a recession. This positive news on GDP has yet to influence the pound this morning. Tuesday, we have US inflation levels, with 7.3% the forecasted down from the previous 7.7%. Thus, linking the comments earlier in the blog about why the Fed are having to alter their approach. Wednesday morning UK inflation levels are being released; a 10.9% forecast is expected down from the previous 11.1%.

Wednesday and Thursday are arguably the most important days this week, it sees the Federal reserve have their latest round of interest rate talks on Wednesday. It is widely expected a 50bp hike is set to be approved, taking US interest rates up to 4.5%.

Thursday lunch time the Bank of England are set to announce a further 50bp raise for interest rates in the UK. This means from December 2021- December 2022 the UK base rate will have increased from 0.1% – 3.5%, the bank is still consistent on achieving their 2% inflation agenda. An eyewatering rise for anyone who has had to secure finance from the banks in recent months.

One key piece of information to watch is how the policymaker’s vote. There are 9 policymakers who sit on the bank of England monetary policy board, they will all vote for what rate raise they deem appropriate. There are some reports there could be the first 4-way split since 1997, which could cause volatility on the pound depending upon how the results show. The markets will digest the split as to future approaches from the bank regarding rate raises. More votes skewed towards a smaller hike could in turn suggest the bank may also look to slow down on its interest rate policy in coming meetings as more members of the board are starting to share the same opinion.

The European Central Bank will also speak on Thursday afternoon to give their latest interest rate decision, the ECB are typically known as the more ‘laid back’ of the big three central banks. One of the key reasons as to why they are deemed ‘laid back’ is the Eurozone consists of 19 countries who all adopt the Euro as their currency, when the ECB raises rates, it effects 19 different economies who are all in contrasting economic condition. Germany often known as Europe’s powerhouse will have the same interest rate as Greece, a country with a troubled economic past. Consequently, they historically are more methodical in their approach to changing policy. This rate raise will take rates across the eurozone to 2.5%.

With the weather set to dip well below freezing across the UK this week it may be wise to speak to one of our highly experienced team and see if we can help you get your currency exposure wrapped up with one of our contract options.

There is a red-hot week of economic data lined up which can cause volatility swings, do not get caught out in the cold!

For further questions on how we can assist with your currency requirements please email us directly [email protected]

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

By
Daniel Wright
-

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 [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.

GBP/EUR continues to trade at annual low with BoE meeting in focus in week

By
Daniel Wright
-

In the early hours of this morning, the Pound to Euro exchange rate hit a fresh annual low of 1.1385, which is the lowest level the pair has traded at in close to 20 months.

The weak start to this week’s trading follows on from a 1.25% drop last week, after Friday’s sell-off pushed the Pound lower off the back of some concerning economic data for the UK.

UK Retail Sales were expected to have dropped by 0.5% in August, but data released on Friday showed a drop of 1.6% month on month. With the cost-of-living crisis a mainstay in the news a drop-off wasn’t a surprise but it was the size of the drop that shocked the currency markets and pushed the Pound lower across the board of major currency pairs.

The Office for National Statistics confirmed that all retail sectors were affected and economic reports such as Friday’s confirm that the economy is likely to slide into a recession.

There are hopes that the newly appointed Prime Ministers’ announcement of a two-year cap on energy prices will help ease the cost-of-living crisis and boost spending but the announcement came this month so moving forward retail sales figures are likely to be followed closely and could impact the Pound’s value as we saw on Friday.

This week both the FED Reserve in the US and the Bank of England here in the UK are expected to hike interest rates. There could be further market movements for the Pound as there is uncertainty regarding how much the Monetary Policy Committee will decide to hike interest rates by.

At the last meeting, the BoE hiked by 0.5% and although it’s likely that they will do the same again, the voting patterns haven’t been unanimous with some favouring a 25-basis point hike and others 75 basis points so this Thursday’s release is certainly worth looking out for.

Should you need assistance with a large currency conversion for the purchase or sale of a property overseas and you would like to discuss these market movements in more detail, please feel free to email me, Joseph Wright on [email protected], and I will be happy to have a chat with you.

You can also request a quote anytime you wish if you would like to compare to your bank or current broker.

Pound Sterling losses continue as cost of living crisis dominates headlines – New Prime Minister to be announced today

By
Daniel Wright
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Pound to Euro rate continues to fall, making history in the process

Sterling exchange rates have continues to drift to kick start a new trading week, as the cost of living crisis dominates headlines across UK media.

With today being an important day for UK politics as we see the announcement of the winner in the Conservative party leadership contest, and ultimately who will be the new Prime Minister, they will almost instantaneously have to announce how they plan to combat what appears to be an extremely challenging winter for the majority of households and businesses.

It is widely expected that Liz Truss will be announced later today at 12:30 and all eyes from investors and speculators will be on her plans to keep people and certain business’s afloat as we face a difficult winter of rising costs, forced closures of retailers, and people simply having to choose between food on the table or heating the house.

This is still clearly impacting the value of Sterling exchange rates, and many feel that it will continue to impact them in the coming months too.

Capital Economics, a well-known independent economic research business has some fairly negative predictions out there for the pound, with expectations that Sterling will lose roughly 5% on a trade-weighted basis in the coming months. This essentially means they expect weakness against most majors, a 5% drop for GBP/EUR or GBP/USD would see Sterling drop below 1.10 as an example, so although it feels low now, if these predictions come true then there may be much further to fall.

It has to be said that the markets can change very quickly and forecasts can be wrong, so it is key to retain the view that things could change, however economic data in the States and the Eurozone is way outperforming the U.K at present, and the drop off in the pound only adds fuel to the fire.

A lower pound means everything imported costs more, from food to gas prices, the lower it drops the higher inflation rises and the more people are paying for goods and services, I personally am noticing costs for almost everything rising and that will be down to many things, but also a lower pound pushing up fuel, transportation, energy and packaging costs for basically every product on our shelves.

The week ahead

We have the news on the new PM later this morning to kick start the week, and as mentioned previously I believe the plans laid out off the back of that could be key for the pound in the early stages of the week.

For those with an interest in Australian or Canadian Dollars, we have the RBA interest rate decision tonight and the Bank of Canada later this week on Wednesday.

Euro followers will note growth figures on Wednesday and more importantly the European Central Bank interest rate decision on Thursday, where the market expects an aggressive 75 basis points hike in interest rates, any change to this could cause immediate volatility, and the wording used regarding future fiscal policy in the press conference after is also likely to set the tone for how the Euro performs over the rest of the trading week.

Currency exchange to carry out and worried about market movements?

If you have an exchange to carry out, yet you are concerned about what is going on currently then feel free to get in touch with us today. We are experts in this field and whilst we cannot directly advise you we can help you negotiate these challenging times along with having a number of tools to assist you to avoid adverse market movement or to help you take advantage of a spike.

If you would like to discuss anything within this article in further detail feel free to contact me at [email protected] and I will be happy to help you.

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

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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.

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