Sterling drop picks up pace

25 February, 2016

Rob Bastin

Wednesday’s trading offered no data releases in the morning for the UK or Euro-zone, with just US Services PMI announced in the afternoon. Markets had been expecting a growth figure of 53.5 but actual results disappointed coming in at 49.8 which confirms a small contraction in the month of February. The Dollar came under pressure against the Euro following this announcement and saw EUR/USD rates start to push up from a 3 week low, but failed to see a recovery for the weak pound which is now trading at the lowest rates for 7 years against the greenback.

This spells bad news for GBP/EUR buyers as we already have a weak pound, but in the recent couple weeks the Euro has also been weak meaning rates have largely traded sideways after a significant drop in January. We now face the prospect of a stronger Euro again as it continues its recovery from record lows, and could very well aid further losses on GBP/EUR exchange rates as this downward trend continues. Rates have already dropped to the lowest levels this year, and indeed since December 2014. Having already dropped over 10% in less than 3 months you may be forgiven for assuming that rates won’t go any lower for now, however unfortunately the reality is a very different picture. When analysing the long term trend the market expectations is very much for a further 5% drop before finding any real support, something that could increase a €250,000 property by £10,000.

This morning at 9:30am we have the latest Q4 GDP revision for the UK with analysts expecting no change from the previous 1.9%. Shortly after at 10:00am inflation figures for the Euro-zone will be released with again no change expected from last month. Durable Goods Orders for the US is the main release to watch out for this afternoon however it is worth mentioning that data is having very little impact on exchange rates currently with the sentiment being the main driver of movements.

Currency Index has been extremely busy this week with clients opting for a Forward Contract where you fix your rate at current levels to protect yourself from any further decline in rates. So long as you have 10% of the funds you can do this for up to 1 year ahead. If you haven’t considered this already then make sure you speak with your broker today before it is too late.