New 31 year low for exchange rates

7 October, 2016

Robin Haynes

The Pound yesterday hit its lowest level against the US Dollar since 1985, and against the Euro for some 5 years, as markets continue to fasten their seatbelts ready for the 2017 Brexit rollercoaster ride.

The anticipated impasse appears to be that Theresa May is already talking down any British agreement to free movement for EU citizens in the UK, while Angela Merkel yesterday repeated her insistence that without free movement, there will be no access to the single market for Britain’s businesses and consumers. Should this situation play out, the UK’s economy could struggle to compete with its continental neighbours, and if you think of a currency’s value as akin to a country’s national share price, it’s easy to see why the Pound is in free-fall.

Of course, this could all be jockeying for position ahead of negotiations, but we won’t know how much each side is prepared to compromise until well into next year at the earliest. The triggering of Article 50 early next year, seems likely to give the Pound a further kick while it is down, so it is entirely conceivable that the current trend for falling exchange rates will continue for some time.

GDP estimate today
Although, as pre-referendum, a lot of economic data is falling under the radar of the markets now that Brexit negotiations are filling the business pages, we do have an important GDP estimate for the UK due from the NIESR at 3pm today. This estimates UK growth for the previous 3 months, and comes out a month ahead of official figures, but tends to be reliable. Anything showing that the UK economy has struggled since the referendum, or worse still could be heading for recession, could send the Pound on a sharp fall as the week draws to a close.

Elsewhere, we have the key monthly US labour market figures, non-farm payrolls, at 1.30pm, which often cause movement for the US Dollar.

Cutting your losses?
Many of our clients with requirements to buy Euros or US Dollars in the coming months are currently taking out forward contracts to fix and guarantee their exchange rate in advance. Current rates might not be pretty, but if you feel you are swimming against an outgoing tide, consider grabbing a life buoy now, to ensure you are not left out at sea.