Warning signs for exchange rates

9 July, 2014

Robin Haynes

The Pound fell back during yesterday morning’s trading, after UK manufacturing and industrial production data showed a surprise fall. Manufacturing growth, which has been a cornerstone of the UK’s economic recovery, fell in May from 5.6% to 3.7%, against expectations of a fall to 4.4%. While the figures still show growth, the pace has slowed significantly, indicating that all is not as well as was thought in the UK’s industrial base.

The British Chambers of Commerce also issued a strong warning that interest rates should not be increased too early, as the debate about rate rises continues. The Pound’s recent strength has been strongly linked to speculation about interest rate rises, and this is a debate which is likely to swing in both directions before the Bank of England make any decisions later in the year.

Thankfully for those of you sending money abroad, sterling did recover through the afternoon, with rates for buying Euros and US Dollars still hovering around recent multi-year highs.

Overnight, Halifax also announced that house prices continue to rise according to their own data, up 8.8% in the year to June, with many analysts seeing another house price bubble as the biggest risk to the UK’s recovery, and therefore the fortunes of the Pound.

There is no major data due out today until ECB President Mario Draghi’s speech this evening, before tomorrow’s release of the UK trade balance for May.

With rates still very attractive for most currencies, the Pound’s upward momentum seems to have come to a stop for the moment, and risks of sterling falling back are certainly worth considering. Securing an exchange rate now for any major transactions in the coming months is therefore an option worth considering.