Sterling continues to bomb

This week has already been a terrible week for the Pound. Things started with Theresa May announcing at the Conservative party conference over the weekend that she would definitely trigger Article 50 by March 2017 and that she was prepared to go down the road of “no access to the single market”, termed in some quarters a “hard Brexit” and as such the reality of a definite Brexit, coupled with a very tough negotiation came crashing down onto the markets, with the Pound the obvious loser. We lost a couple of cents against both the Euro and the Dollar on Monday, and things have been dropping ever since.

Yesterday saw a couple of further blows for the Pound, with the IMF lowering their growth forecast for the UK in 2017 from 2.2% to only 1.1% and the ECB leaking news that they plan to reduce their Quantitative Easing programme by €10bn per month, when most analysts were expecting them to increase the programme.

The IMF directly related the drop in growth to the UK’s exit from the EU, with Maurice Obstfeld, the IMF’s chief economist, saying at a news conference in Washington that already there is some evidence of deferred investment. “We further downgraded 2017 just because we now know that the negotiation process will be going on. It will entail a lot of uncertainty,” he said.

The thing that many Euro and Dollar buyers are hanging on to is the prospect of contagion from the UK vote spreading across Europe, coupled with an already struggling Eurozone economy. Some have even compared Deutsche Bank’s current problems to Lehman Brothers’ demise in 2008. Could GBPEUR recover just because the Euro slides significantly too? Well going by the ECB decision to curb QE you would have to say that the expectations of these potential catastrophes is obviously not at the forefront of Mario Draghi’s mind, so we will likely have to accept a continuingly weakening Pound for the foreseeable future.

Current rates against the Euro are at 5 year lows and against the US Dollar its 31 year lows, but any expectation of a sudden reversal of these trends or even just a bit of a claw back, are virtually non-existent, do not assume that what goes down must come back up again.

So if you have an upcoming requirement, it is essential that you stay in close contact with your Currency Index account manager, so that you can discuss the options available to you – you can lock your rate in now, even if you do not need the currency straight away using a CI forward contract.