Sterling has drooped a little further following the inflation data this morning, showing a return to 10.1% year on year and 0.5% in September. This was broadly as expected. In any case, economic data that used to be all-important is only one of many factors buffeting the pound right now.
A return to swingeing cuts appears to be on the cards, with even the pensions triple lock apparently up for grabs as the new chancellor Jeremy Hunt shreds the last chancellor’s plans.
Frankly, the writing team at Smart don’t know whether to laugh or cry having put Kwasi Kwarteng on the cover of our new Smart Currency Business quarterly forecast only last week, along with the headline, Does Trussonomics have a future?.
Please download the shorter version here. It contains the predictions of exchange rates from the major banks for the run up to 2023, but also goes beyond and right up to this time next year. Some predict the pound will be at parity with the euro by Christmas. If that seems wildly pessimistic, few predicted the euro would be below parity with the dollar either, and yet it is now firmly stuck there.
How big a hole, if repeated for sterling, would that put in your buying-abroad budget if you don’t have a forward contract in place?
Not, of course, that the major banks or anyone else really has an idea what is going to happen. We’ve talked a lot about ‘black swan events’ over the last couple of years of pandemic and war, but the critical factor in a black swan event is that in retrospect they made sense. We should have heeded the warning signs of a global pandemic and a warmongering Putin.
Most of us have a bias towards optimism. Especially those of us who make big retirement or second home-buying plans. Given the likelihood of two options, we tend to assume that the better one will happen. So why should we assume that those banks saying that the pound will be worth less than one euro are being pessimistic? Suppose they are being wildly optimistic?
When your great, long-cherished plans are about to come to fruition, why take the chance on your budget? That is why we strongly advise, in this febrile atmosphere for politics and economics, that you lock in your rate with a call to your trader on 020 8003 4915.
