The pound slipped yesterday, dropping to its weakest position for two weeks against the euro, to levels rarely seen this year against the euro and US dollar. That has continued this morning.
The Financial Times blames it on “investors raising short positions to 16-month high”. This is no doubt true, but also underlines the difficulty of trying to bet against the markets (or even understand the language that they speak).
There has been some data that’s easier to follow, however. Retail sales in the UK slumped by 4.4% in the past year. This is the worst reading for close to five years. New car registrations also fell dramatically, but house prices might possibly be rising very slightly, according to the Halifax House Price Index.
This is all comes just 24 hours before a Bank of England interest rate decision. The pound’s drop has been blamed by some on typical market jitters ahead of an important decision. The issue is whether the Bank of England will start to cut interest rates before the American and European central banks. The data (for example, people not spending in shops) is suggesting that it might have to, to perk up the economy.
Sterling has lost 0.75% against the euro in the past week, and anyone who has a large GBP/EUR transaction coming up that is not protected by a forward contract is bound to be nervous.
If, tomorrow, the governor of the Bank of England indicates that interest rates are coming down soon, the pound may well fall further.
To protect your finances from exchange rate changes, please call your account manager on 020 7898 0541.
