While the pound has perked up a little in the past few days against the US dollar, or at least its decline has been arrested, it has returned to a negative trajectory this morning against the euro, currently 3.5 cents weaker than a month ago.
The brief improvement following the new energy cap policy from Liz Truss’s government appears to have played out and there are concerns that there could be a rapid weakening, as we are already seeing just a few hours into the new week.
This week’s Bank of England interest rate decision has been postponed until next week, due to the sad death of the Queen. There will also be a bank holiday for the state funeral next Monday.
There is plenty more to affect sterling this week, which sees a lot of high level data being released, including GDP, unemployment, inflation and retail sales. For those heading abroad for viewing trips or to complete on purchases this week, it’s certainly one to consider locking in your rate today, or risk being embarrassed in the notary’s office should an exchange rate change leave you thousands of euros short. Speak to your trader on 020 8108 5163 to discuss avoiding that risk.
The first of the data releases came out this morning, showing the economy grew by 0.2% in August, which is above market expectations. Moreover, given that this was before the new Prime Minister outlined her plan to subsidise energy bills to the tune of €150bn, more or less, it was in a period when the average household still expected to be over £1,000 poorer. There is speculation that the new plan could stave off a recession and avoid the worst of inflation.
Despite that, the pound to euro has continued to weaken.
The pound isn’t the only currency that has been struggling of late. China’s renmimbi has had its largest annual fall on record (almost 9%), and that’s despite state actions to arrest its decline. It shows that when the markets turn against it, your currency will fall.
The pound remains on a knife-edge. Its current relative strength against the euro – remaining well above its five-year average despite recent falls – is largely predicated on the eurozone’s problems being bigger than the UK’s. Any change in that could see sterling in a downward spiral as large as its drop against the US dollar. A forward contract will avoid that becoming your problem if you have committed to a transaction overseas.
