Interest Rate Warning

18 September, 2020

Matthew Boyle

Last week was a particularly a turbulent one for exchange rates, with GBP suffering its biggest losses since March. This week has also been a volatile one, with unpredictability seemingly increasing by the day.

Yesterday saw the Pound drop sharply across the board following an announcement by the Bank of England stating that it would look at options to take interest rates to 0% in the coming months.

As a result this saw the Pound tank, notably against the EURO and USD, losing around a cent against both within minutes.

This only adds to the concern  and downside risk as to what GBP rates may do in the coming weeks.

To add to this new fear of an interest rate drop, It seems that inevitably we are looking at a second lockdown in the UK. To add to that, the end of the Furlough scheme is approaching quickly, and of course the final date for Brexit.

Despite the downside risk for GBP rates remaining high, and fears over a no-deal Brexit increasing yesterday saw some brief respite to the drop in rates.

Shortly after the Bank of England Announcement EC President Ursula Von Der Leyen said that a Brexit deal “is still possible”.

Consequently the Pound was able to regain some of its earlier loses, and by the end of the days trading closed close to the levels seen at open against the greenback, but had only managed to steal back half of the cent it had lost against the single currency.

Whilst today we have a few data releases of note, (primarily from Canada and the US early afternoon) the market remains driven largely by wider issues, and as such expect volatility to remain high.

With Downside risk for the Pound increasing, those selling GBP to buy other currencies would be well advised to look at options to mitigate risk.

With employment looking to spike soon, likely restrictions re-introduced UK due to COVID and a looming drop in interest rates, GBP outlook is fairly bleak.

And whilst Von Der Leyen says a deal may be possible, is it probable? Moreover can you afford to take that long-shot risk?

Speak to your Broker today for some friendly guidance in how to remove the risk of the rate dropping and the cost of your purchase increasing.