The worries that many analysts had about sterling in 2023 appear to be manifesting themselves.
The Prime Minister’s 100th day in office coincided with a sharp sell off in sterling, although that was more to do with central banks’ actions and the surprising performance of the US economy.
When central banks raise interest rates – as the US Federal Reserve (‘the Fed’) has been doing – the idea is that the economy slows down, people feel uncertain about their jobs, spend less, and inflation falls. Instead of which in the US on Friday it was revealed that an incredible half a million new jobs were created last month. The data is known as ‘non-farm payrolls’, and it rose by 517,000, when only 190,000 had been expected. That means that the Fed may have to keep on piling on interest rate increases, and money flows towards the dollar. For business people, the good news is that business is still booming, but the bad news is that borrowing costs will continue to rise.
This being economics, you can interpret the data about a hundred other ways, which is why economic prediction is little more than guesswork.
Whatever the reason, sterling has fallen sharply against the euro to the point it was at back in those dreary days of the second lockdown, when we were all obsessed with graphs showing vaccination levels and Covid rates.
So, things could be worse.
For those with a big plan to buy a property or retire abroad, at least those days are gone and a percentage or two worse on the exchange rate isn’t so bad.
All the same, there are plenty of predictions, including in our own Quarterly Forecast, that sterling has a way to go further down. It is already well below the median prediction, but some had it falling to the €1.08 sort of level by the end of March. Would you be able to complete on your plans if it went to that sort of level?
As I say, little more than educated guesswork, but since these predictions were made, if anything the economic outlook has begun to look worse for sterling.
Therefore, to lock in your rate with a forward contract for the year ahead – or at least part of the money you may be committed to – call your trader on 020 8108 5163.
