After its sharp decline two weeks ago against the euro, the pound is showing no signs of bouncing back. The bigger picture is of a series of falls since the start of the spring, each with little in the way of recovery before the next one. The result for GBP/EUR is a near-7% drop since the heights of early March.
For anyone hoping for a swift return to those levels, there doesn’t appear much on the horizon to offer encouragement. There are three particular risks for the pound over the next six weeks until Christmas. (You did realise there were only 37 shopping days to Christmas?)
The first is that sterling is at the mercy of global stock markets as well as whatever happens in this country, and the warnings are of a collapsing bubble, especially in tech stocks. That’s certainly a risk to be wary of.
The markets will also start looking at the next interest rate decision on 18 December. Last week the Bank of England (BoE) opted, narrowly, to keep interest rates at 4%. But can we price in a reduction at the next meeting? Not yet. Although the majority was only five to four, the BoE said that more evidence was needed that inflation is coming down. That will start to come through tomorrow with the unemployment and earnings data. On Thursday it will be the size of the economy, via Gross Domestic Product (GDP).
Your exchange rate also faces risks from the Budget, now just over two weeks away. Following chancellor Rachel Reeves’ clear warnings, speculation has moved from whether taxes rises are coming (they are) to what happens when they do. Can she avoid resigning, for example, when it was such a clear manifesto pledge? Can Kier Starmer avoid the blowback risking his own position too?
It could be a febrile few weeks ahead. If your financial future depends on a certain exchange rate, please call your account manager on 020 8003 4915 and we can discuss locking that in for you with a forward contract so you can put that stress aside for the festive season.
