Interest rate woes for the Pound

A tumultuous week draws to a close today with the Pound very much on the back foot. An ailing Euro has actually managed to make some gains and the Dollar is still looking good as the US economy shows signs of being back on track.

The Pound suffered mainly as a result of Bank of England governor Mark Carney putting any chance of interest rate rises off until February next year. A higher yielding currency attracts more investment and hence gathers strength, and the markets had been pricing in interest rises in the UK sooner than February 2015, so the news caused much of this pricing in to unravel, and Sterling dropped significantly across the board. Generally the UK data this week was pretty solid, with the highlight being unemployment dropping to the lowest rate for 6 years, but from a Sterling perspective, the markets know the UK economy is getting there, so the only thing that matters is interest rates and when they rise.

The Euro saw some shockingly bad growth figures from France and Germany yesterday. As the blocs largest two economies this was very bad news for the European recovery, but in light of Sterling’s troubles, the Euro has actually made some gains.

The Dollar is still proving to be the market’s current favourite, and has pushed both the Pound and the Euro back as investors pile their reserves back into the Greenback following a strong performance by the US economy in the last few weeks.

Today’s data, while important is unlikely to buck these trends – UK GDP is due this morning with recent performances and expectations looking pretty positive and US PPI and industrial production this afternoon expected to be Ok too.

So things are not looking as rosy for those of you with Sterling and a foreign currency purchase on the horizon. Rates are still very good – let’s not forget the Pound is supported by the UK economy doing well, but we are some way off the highs we had achieved in the last few months, with no real sign of improvement until those interest rises materialise. The chance of further losses is possible, so it may be best to consider a forward contract for you upcoming currency requirement to cut out the chance of further losses.

As ever stay in close contact with your CI account manager who can explain all of your options and help you to achieve the best rate possible.