After a difficult week for sterling, where every day saw new falls, you might be forgiven for thinking that the pound was trading at an all-time low. In fact, it is only down 1% on last week, 1.35% on the month, and is still 2.7% stronger than this time last year against the euro.
So, although disappointing if you had agreed a large cross-currency transaction in the summer, failed to buy a forward contract, (which is a specialism of ours), and had to pay today, it could have been a lot worse. Indeed, could it get worse?
The Bank of England joined the US Federal Reserve in keeping interest rates on hold last week, believing that what has already happened with interest rates (14 consecutive rises) has done enough to dampen the economy down. The worry is that they might have gone too far. For those people with a mortgage product coming to an end, or whose company is considering lay-offs, that worry will be more acute, but at an exchange rate level, signs that the economy is heading into a recession are likely to weaken sterling.
Certainly the indications from just before the weekend weren’t good. The Purchasing Manager’s Index (PMI), which is a well-known gauge of business confidence, was well down for the UK, while improving dramatically for Germany and the eurozone as a whole.
We will get a better indication of the state of the British economy on Friday, with GDP (Gross Domestic Product), but if it looks as though the British economy is on the way down, as you might expect after so many interest rate rises, your pounds could soon be worth less.
To avoid that risk, do give your trader a call on 020 8108 5163 and discuss locking in this rate – still well up on a year ago – with a forward contract.
