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How is the pound faring against the euro and the dollar at the moment, and what could impact its movements going forward?

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How is sterling faring currently?

The pound weakened against both the euro and the dollar at the beginning of this week after PMI data was released, which revealed that the UK manufacturing and services industries have fared worse-than-expected so far this month.

The war in Ukraine, high inflation and supply chain disruption were the main reasons for poor performance in both sectors. Sterling has since started to recover following an improved market mood.

Whilst the euro continues to be impacted by the war in Ukraine and its repercussions, as well as decisions from the European Central Bank, the dollar is benefitting from its safe-haven status and the Federal Reserve’s aggressive stance towards interest rates.

So, what key factors continue to impact GBP/EUR and GBP/USD?

1. Bank of England

The market view is that the Bank of England will not be able to hike rates many more times without causing a recession. Since the pound usually strengthens when interest rates are raised, this view isn’t supportive for sterling. However, the recent better-than-expected UK jobs data could change this view and encourage the Bank of England to continue to hike rates, which would be beneficial for the pound.

2. Northern Ireland

An increasingly negative Brexit narrative could continue to impact the pound. This has been caused by the UK rejecting the EU’s proposal to reduce the impact of the post-Brexit treaty for Northern Ireland.

The EU claims that the proposal would reduce the amount of administration and checks on goods at the borders, however, Foreign Secretary Liz Truss says it would lead to “everyday items disappearing from shelves”. Should this escalate, sterling could be impacted further.

3. UK economy

Worries over the state of the UK economy and the cost-of-living crisis are impacting the pound. After flatlining in February, the UK economy shrank by 0.1% in March as the rising cost of living forced consumers to cut back on spending. This was a worse fall than predicted. With inflation continuing to rise and the ongoing war in Ukraine, economic data could continue to drive sterling’s movements.

4. Federal Reserve

The Federal Reserve’s aggressive stance toward monetary policy and interest rates is supporting the dollar. Federal Reserve officials have expressed the view that interest rates can continue to be hiked without damaging the labour market – a view that the markets have also adopted. However, recent meeting minutes suggest that the Fed’s stance could become more cautious later this year.

5. War in Ukraine

The war in Ukraine continues to weigh on the euro. At the end of last week, Russia announced it was sanctioning several European energy companies.

Among the 31 companies sanctioned was a key Polish pipeline that supplies much of Europe’s gas. This news saw natural gas prices skyrocket which weighed heavy on the euro, causing it to fall against most major currencies.

These rising prices could potentially send the eurozone economy into recession, threatening the likelihood of any interest rate hikes from the European Central Bank.

6. Global economy

In contrast to the euro, the dollar benefits from concerns over the war in Ukraine and worries about the state of the global economy. This is because it is a safe-haven currency, so traders turn to the dollar in times of crisis and market distress. News that China’s economy is suffering due to recent COVID-19 lockdowns has added to concerns about the global economy and has caused the dollar to strengthen.

What does this mean for your property-buying budget?

The pound’s movements rely on many unpredictable events and factors. From the state of the UK economy to the war in Ukraine and Brexit worries, no one can foresee where sterling will move next.

In these uncertain times, it’s worth protecting your property-buying budget from exchange rate movements. Secure a fixed exchange rate with a forward contract; or call us on 020 7898 0541 to get started.

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