Will Sterling exchange rates improve any time soon?

Since the UK voted to leave the EU 4 weeks ago, the currency markets have behaved exactly as expected with an initial 10% drop overnight and further losses developing in the aftermath. The country finds itself in one of the least attractive situations for investment that has been seen for many years, and so the British Pound is currently the weakest currency in the markets. Since the Brexit vote the Bank of England have indicated plans to further cut interest rates or increase the current Quantitative Easing Programme this Summer, either of which is extremely negative for the value of our currency. After holding rates in July, the Bank of England are now odds on to implement a rate cut of between 0.25 and 0.5 basis points on August 4^th, after latest PMI indicators showed a contraction in the Services and Manufacturing sectors, and the worst levels seen since 2009. These results indicate that the UK economy could shrink as much as 0.5% in this quarter, and that a technical recession could be confirmed by the new year.

http://www.bbc.co.uk/news/business-36864273

It has come to light recently that some of our clients are holding onto a hope of a recovery in the short term, perhaps based on some economists’ optimistic views of the potential Brexit fall out before it actually happened. I felt it would be prudent to pass on the latest market expectations and forecasts that have been coming thick and fast since the Bank of England’s comments last week, to ensure that all our clients have as much information as possible to make their decision on timing their transfer.

Below is an article recently published on the BBC that highlights some of the latest forecasts for GBP/USD. Although focussed on cable, the drop in rates is expected to be across the board for Sterling during these uncertain times:

http://www.bbc.co.uk/news/business-36721278

Interestingly Swiss bank Julius Baer, the industry’s most accurate currency forecaster, has had analysts on CNBC last week suggesting that GBP/EUR is likely to test initial support at 1.11 in the coming weeks, and that a move to parity in the next year ‘would not be at all surprising’. Major banks now seem unanimous in the expectation of the pound to fall further over the next 6-12 months, with an average of a further 10-15% depreciation expected. We have already seen the small relief provided when the new Prime Minister was appointed, but we have likely already seen the peak of this recovery with rates starting to drop again in the last few days.

For Euro and US Dollar buyers the current rates are understandably not very attractive compared to pre-Brexit levels, however it seems we could well be set for even further losses in the weeks and months ahead. Most economists are predicting the bottom of the market to be between 6-12 months away so it could conceivably be 18 months to 2 years before we are seeing better exchange rates again. Many of our clients are currently favouring the Forward Contract option as this can guarantee you a fixed exchange rate for anything up 2 years in advance with just a 10% deposit. Please feel free to contact us if you would to discuss this option in more detail, along with other tools that can help in this difficult dropping market.