Sterling shot upwards last week, gaining 1.2% over the week to its strongest against the euro for three months, a good 2% above the average of the past five years.
The gain has been just as spectacular against the US dollar, so why not lock it in for the year ahead with a forward contract? Call your trader on 020 8108 5163 to discuss your options.
For anyone with a big transaction coming up overseas (or lots of smaller ones), one of the sharpest rises for sterling in recent years won’t be much use if it disappears just as quickly, as it well could. Indeed, a rise in sterling that is not based on solid foundations, such as the underlying strength of an economy, can just give people false expectations.
So, why is the pound so strong? Essentially it appears to come down to two things. Firstly, while there are strong market expectations of interest rate cuts in the USA and eurozone, Bank of England officials have made it very clear that they are not cutting rates any time soon. While a previous Bank of England governor gained a reputation as an ‘unreliable boyfriend’, the current one, Andrew Bailey, has unequivocally poured cold water on any hopes for rate cuts in early 2024.
However, secondly, the hope of rate cuts in the USA has been a boost for global business, and the pound generally benefits from rises in the stock market.
But what the pound is probably NOT gaining from, is any longer term improvement in the economic situation. Indeed Andrew Baley said last week that the UK’s economic outlook is the worst he has seen in his career.
Therefore, the pound’s current strength is on somewhat shaky ground. Do please consider whether you could afford to make up the difference if the pound fell by, say, 5% or more, adding thousands to a property purchase abroad, for example. Then please call your trader.
