Sterling exchange rate Forecast – As I’m sure all our regular readers will be aware, the Pound has not been faring well against the most commonly traded currencies, the Euro and US Dollar. Brexit uncertainty has been weakening the Pound since May. However, there are Sterling curreny pairs that are actually quite high, due to weakness in their respective currencies. In today’s post I’ll have a look at where your Pound goes further.
The GBP/TRY exchange rate is very good due to a weak Lira. 2 years ago, the rate was 4.4 Lira to the Pound, but today it’s 50% higher at 6.93. There are various reasons the Lira is so weak: Uneasy relations with the USA and political strains caused by US/China trade tensions, a deep recession and rising inflation, coupled with central bank intervention in the currency markets. The currency has now stabilised and down from the peak of almost 9 to the Pound, but still a very good proposition for UK Buyers.
The South African Rand has been weakening in recent years. Due to the global slowdown, there has been a sell-off for perceived ‘riskier’ assets, one of which is the South African Rand. China and Germany slowing have given investors the jitters and South African political and economic uncertainties, combined with global trade fears, have been weakening the ZAR for some time. The result of all of this is a GBP/ZAR rate 15% higher than 2 years ago.
The GBP/AUD is attractive, rising from $1.60 to $1.79 over the last few years. The reason the ‘Aussie’ is weaker and cheaper to buy is largely due to its close ties to China. Australia relies on the Chinese economy as they purchase much of their goods including Iron Ore, one of their main exports. As China slows, and tensions between the US and China increase, it has the knock-on effect of weakening the Aussie and making it cheaper to buy. This has caused the GBP/AUD to rise steadily on average for some years.
The New Zealand Dollar weakened recently following a 50-basis point cut in their interest rate. There is also speculation they will cut rates again to try and stimulate the economy. Lower interest rates tend to weaken a currency due to the lower return on offer. Much of New Zealand’s economy relies on its agricultural commodity trade with the rest of the world, and like Australia, has a significant exposure to the Chinese economy.
The GBP/HUF rate is 10% higher than 2 years ago, so Sterling goes much further in Hungary than other European destinations. They have an export led economy, and their main trading partners are in the EU, such as Germany. A dovish central bank seems to be happy with a weaker Forint as it helps exports and the economy. Hungary also receives billions of Euros in development aid from the EU, and if converted to HUF it will increase the amount received.
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Sterling Recovers – The Pound has had a welcome boost over the last few days, rising from it’s 2-year low vs. the Euro. The catalyst for the recovery was inflation numbers yesterday that were higher than forecast. The key CPI reading came in at 2.1%. As this is above the Bank of England’s target of 2%, it would normally signal that an interest rate rise in on the cards. Higher interest rates tend to strengthen a currency due to the higher return on offer. However, with Brexit uncertainty still hanging over the UK, I don’t think we’ll see rates going up in the short term.
The Pound received a further boost this morning following the latest UK Retail Sales data. Markets had been expecting a contraction of -0.2%, however the actual number showed growth of +0.2%. Retail Sales are a very good barometer of the overall economy. These figures show that the underlying economy is doing ok despite the uncertainty caused by Brexit.
Jobs figures this week show that unemployment is still at record lows. Even the recent -0.2% GDP reading needs to be taken in context. Due to stockpiling in the expectation of a March EU exit date, coupled with car manufacturers bringing forward their summer shutdown, a slight contraction was not a surprise. Forecasts suggest GDP will return positive in the next quarter.
All of the above shows that the Pound is simply undervalued due to Brexit uncertainty, and is likely to remain so for some time.
If a Deal can be done with the EU, the Pound will surge higher in value. However, there is no impetus for the EU to negotiate while they think a No Deal Brexit will be blocked by parliament. Likely options to try and block this would be a vote of no confidence, a temporary government that can command a majority, or a general election. All of these options, including a No Deal, will probably send the Pound lower.
The only thing that could help Sterling is a deal being agreed with the EU before the end of October. Any extension to Brexit, or talk of an election, would simply increase uncertainty and kick the can further down the road. This would probably weaken the Pound further.
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Pound to US Dollar exchange rates have continued to fall and sit close to record highs against the Pound.
With the on-going US/China trade war we have seen a significant flight to safety. In times of uncertainty the US dollar will often benefit. With it being the global currency, with many commodities priced in dollars, investors will often buy US dollars. This is something we are currently seeing.
In contrast we have seen other ‘riskier’ currencies fall quite heavily in value. For example the South African Rand (ZAR) and Australian Dollar (AUD) are close to record lows against the US dollar. They have also seen some significant losses against the Pound. This continued demand for safer currencies is likely to keep Pound to US Dollar exchange rates on the back foot.
Along with the on-going US/China tensions there have been other financial shocks which are spooking investors. We of course have the continued Brexit debacle but US stock markets have fallen sharply following a number of global concerns with protests in Hong Kong to elections in Argentina adding to deepening worries about the US/China trade war.
These tensions will ease at some point and therefore it is not common for these significant swings to be short lived. A casing point is the USD/AUD exchange rate. Its has moved moved nearly 5% since mid-July. This is not a common movement and shows that if you are in a position to act there are still some great buying opportunities out there.
If you need to convert a large sum, to purchase overseas for example, then get in touch to see how we can help. We offer a free consultation over the phone to discuss your requirements and explain the various options you can consider. We can also provide you with a free quote for you to compare with your bank or existing broker. Our rates are up to 5% better than available elsewhere, so you could save thousands.
Pound falls further as economy shrinks – Earlier this week I outlined some key UK data that was due today. The numbers were released at 09:30am this morning, and they were all worse than expected. The forecast wasn’t particularly good to start with. As the actual numbers were worse than expected, it’s pushed the Pound lower across the board.
Industrial Production was down -0.06%, Manufacturing down -0.2%, and Business Investment down -0.5%. The key release was Gross Domestic Product (GDP) which came in at -0.2%, showing that the economy is now in contraction. This has sent the GBP/EUR rate into the high €1.07’s, and the GBP/USD rate into the high $1.20’s.
Away from data, it is Brexit that continues to weigh on the value of Sterling. It’s looking more and more likely that when Parliament returns from recess in early September. If he loses the vote of no confidence, he could hold an election after the Brexit deadline and after we’ve left the EU. We might see Labour and the SNP try to form a government, but I don’t think this is likely. the markets would not react favourable should this be the case, and the Pound would sink even further.
Talks of an election and an increasing chance of No Deal will likely continue to send the Pound lower. Things could get much worse for the Pound. Those that need to look at converting a large sum of Pounds to another currency, should take action now to explore their options. We offer exceptional exchange rates, and a free consultation over the phone with a currency expert. If you would like to discuss how we can help with your requirements, contact us today or drop me an email.
Have a good weekend.