The pound starts the week 1.25% down on last Monday against the euro and slightly under half that much down on the US dollar.
Although it takes GBP/EUR to 2.5% weaker than its strongest position this month, it was largely expected following the Bank of England decision to cut interest rates while the US Federal Reserve held their rate.
Since then, data emerged showing the US labour market tightening severely, with unemployment rising to 4.3%, its highest since October 2021 and Non-Farm Payrolls at barely half the average of the past 12 months, with just 114,000 new jobs. But the currency markets are less interested in the battle against inflation vs the growth of the economy, and more interested in the fact that investing in sterling is now less attractive than this time last week.
Is this the end of sterling’s drop or will it continue? In our Quarterly Forecast (free to download here), some leading bank forecasters had GBP down by at least another 5% within six months.
Much will depend on whether, like the USA, more data emerges to either make the BoE regret its decision and put off any more interest rate reductions or keep on cutting. This week is a little quiet on the data front, although there is industrial data in the form of the Purchasing Managers’ Index (PMI) later this morning.
For the UK there is more house price data coming out on Wednesday. For those who need to sell a UK property before they can buy a property overseas or retire overseas, the interest rate cut could be good news overall if it perks up the market, as is anticipated by some. According to the Nationwide last week, UK house prices rose by 0.3% in the past month and 2.1% over the year.
For now, the pound remains around 3.5% up on the five-year average against the euro. If it continues to fall and reverted to the five-year average that would be mean a property buyer in the eurozone having to find an extra £10,000 on a €300,000 property.
If that would be a problem for you, why not remove the risk? Simply fix your rate as soon as you commit to a property abroad, with a call to your account manager on 020 8108 5163.
