The pound has strengthened again against the euro, back up to the 2½ year high it reached almost a month ago. Against the dollar, however, while GBP has lost those September gains it remains a stonking 6.5% stronger than this time last year.
The dollar’s recent gain illustrates how, in the world of foreign exchange, what’s good for a currency can be bad for the rest of an economy. According to the Financial Times, large institutional investors (hedge funds, etc) are betting that a win for Donald Trump in two weeks, whatever anyone’s opinion of the politics of it, could result in higher import tariffs, a return to high inflation and, hence, higher interest rates. That’s not good for many people except investors in dollars, who are buying the currency leading to USD strengthening by 4% in just the past few weeks against a basket of currencies.
No-one can say for certain what will be the effect on the pound, if any, for whoever wins the presidential election (though that hasn’t stopped them making predictions), but the next three weeks pose a serious threat to your budget if committed to a large, overseas transactions.
The three main events are, firstly the budget next Thursday. Secondly the US election on 5 November, and thirdly interest rate decisions from both the Bank of England and its equivalent in the USA, the Federal Reserve, on 7 November.
Just one thing on the immediate horizon, too, is a first (“flash”) reading for the Purchasing Manager’s Index (PMI). This is a poll of business leaders on their immediate plans (for hiring, investment, etc). It’s a global poll, so incredibly useful for comparing countries. The UK’s business sector has been far more optimistic than others, such as Germany’s, but will that continue with the UK’s interest rate so much higher? We’ll see at 7am tomorrow morning.
Rest assured that if there are any sharp movements in sterling we will let you know via a rate alert, but by then it may be too late.
To prevent any of that putting your plans at risk, speak to your account manager today on 020 7898 0541 about taking a more proactive approach to currency risk.
