Doom and gloom for the Pound

10 October, 2016

Tom Arnold

Last week was nothing short of a disaster for the Pound, with multi-cent drops across the board against most major currencies, most notably plumbing a new 31 year low against the Dollar and a 5 year low against the Euro.

It all started with the Conservative party conference, which Theresa May used to announce her upcoming plans for Brexit – Article 50 by March 2017 and no Single Market. The confirmation that Brexit was definitely happening, and that we were going down the “hard Brexit” path led to a mass sell-off of the Pound, and a terrible start to the trading week. The next major blow came over night on Thursday/Friday in Asian trading – an automated algorithm picked up a news story where President Hollande was very firm about the European negotiating stance towards Brexit, and an unexpected chain reaction began, which saw a mass selling of the Pound, all support levels blow and the largest single day drop in GBPUSD ever – 6%. By the time European markets opened the Pound had clawed back some of the losses, but nevertheless it still finished the week at the new lows previously mentioned, and even this morning has lost further ground across the board.

The week ahead is quite busy, but notable not for the UK economy, with an almost complete absence of data releases here at home. This could leave the Pound very vulnerable to further losses – with virtually no support left for Sterling in the currency markets, a few positive data releases could have provided some much needed succour. With that not on the cards, any positive data from elsewhere could lead to easy gains against the Pound.

US bank holiday
German current account

German ZEW economic sentiment survey
European ZEW economic sentiment survey

European industrial production
Federal Reserve policy meeting minutes
UK house price

German CPI inflation
US jobless claims

European trade balance
US retail sales
US PPI inflation
Janet Yellen speech

With Sterling based exchange rates at such low levels it would be very easy to think, “things can only get better”. However, that is simply not the case with the currency markets. With Sterling crumbling under a complete lack of support and constant blows, ironically mainly from the UK government, the likelihood is for more losses and in all probability significant losses. Many cash currency providers are already offering sub-parity rates, and it seems only a matter of time before the banks and then the brokers also get to those all-time lows, even for large volume transactions.

If you have an upcoming currency purchase and you have Sterling in hand, make sure you get in touch with your Currency Index account manager to discuss the options open to you in these troubling times.