Writing about currencies every day, as we do at Smart, you might expect that we have some idea of what might happen to exchange rates. Today is one of those days where none of us can have any confidence in where exchange rates will go, with the same action potentially having two outcomes.
We have three vital elements to the day. The interest rate cut, the Budget and the effect of coronavirus reaching the heart of government.
The cut in interest rates announced this morning would normally weaken the pound – and did in very early trading. But in the current circumstances with coronavirus, the Bank of England taking decisive action to combat the economy slowing down, by cutting rates by half of a percent, could strengthen the pound over the days ahead.
The Bank of England monetary policy committee meeting, where such things are decided, wasn’t for another two weeks, so this morning’s announcement is the first unscheduled rate change since the global financial crisis. It’s worth noting that the rate cut (and other measures announced by the Bank of England to support business) may be decisive, but they won’t necessarily be effective and we still face the possibility of an economic recession.
Today’s Budget was meant to be a day when the new Chancellor of the Exchequer Rishi Sunak was to do Dominic Cummings’ bidding and splurge the post-austerity cash on the North of England which gave them the resounding election victory. This would be expected to boost the pound. Now, however, the big currency speculators, whose actions move the markets, may be more interested in whether such spending would be prudent at a time when the economy looks about to take a big hit.
The general feeling seems to be that the pound (and the US dollar) will be taking the brunt of global uncertainty and the euro will be strengthening, but you certainly wouldn’t want to bet your house on that.
The third element is the fact that a government health minister Nadine Dorries has the virus. Although she is recovering, having spent the last few days mixing with other ministers – including the Prime Minister and Health Secretary – there is a real possibility that much of the government will have to self-isolate. What that will do for sterling is anybody’s guess.
As a company working across the world, our thoughts are with those clients and partners affected by Covid-19, especially in Italy. At least new cases in China appear to be falling, and we are only at the very start of the spring and summer. It’s worth remembering that by May this could all be a memory.
So for anyone stuck at home, either self-isolating or because everything they intending doing has been cancelled, what a perfect time to plan a move or property purchase abroad. We would recommend the Property Guides website from the Overseas Guides Company, if you’re looking for some guidance and inspiration.
For all currency matters though, our traders will be safely at the other end of the phone if you would like to talk through your currency strategy, on 020 8108 5337.
At uncertain times like this a forward contract makes even more sense.
