Sterling remains firmly on the back foot

22 March, 2016

Robin Haynes

The Pound dropped back against both the Euro and US Dollar yesterday, as a lack of economic data left markets focused on increased political uncertainty in the UK. After Iain Duncan Smith’s resignation, David Cameron was left to tidy up a messy post-Budget political fallout which has done little to convince the world of the Conservatives’ unity. With a tiny Commons majority, fears of a John Major-esque calamity did nothing to help the Pound, which is already on the back foot as referendum campaigning continues.

Indeed the Bank of England pointed out last week that the Pound’s significant decline since the autumn is largely down to Brexit fears, and the latest polls imply a 33% chance that the UK will leave the EU in June. Last week Denmark beat Switzerland to emerge as the world’s happiest nation as ranked by the UN Sustainable Development Solutions Network, so perhaps that’s a small victory for the ‘stay’ campaign.

Having said that, the Pound has only traded in a +/-4c range against the Euro in the last month, compared to a +/-12c range between November and December, so some stability has returned. Nevertheless the risk remains to the downside.
Against the US Dollar, we have seen the Greenback losing value, improving rates for sending money to the USA, as the Federal Reserve scaled back its interest rate forecasts to two 0.25% rises this year, less sharply than had previously been expected. GBP-USD has now recovered by 4% since the beginning of March.

Easter weekend ahead
A reminder that we have a 4 day working week this week and next, with Easter nearly upon us. While that means a quiet long weekend in much of the world, there is still US data released on Friday in the form of GDP, and exchange rates can move during Asian and US trading on Friday and Monday, so do consider fixing your exchange rate before then. More immediately, we have a raft of important UK inflation figures this morning, which could easily send the Pound lower, and retail sales on Thursday, with a quieter day tomorrow.

For anybody considering whether to ‘stick’ or ‘twist’ with the timing of their exchange rate, how about splitting your currency requirements and buying some now and some later, perhaps better than having all your Easter eggs in one basket? A magical resurrection of the Pound’s value does seem very unlikely, and short term movements are likely to be governed by this morning’s inflation data along with any further consequences of the messy Budget u-turn. For the latest news and rates, just call us at Currency Index for a friendly and informal chat.