How could General Election affect exchange rates?

Friday 9th January 2015 
Where do things stand with exchange rates? Pound/Euro is hovering around its comfortable level of €1.28 and Pound/Dollar has stopped falling, for now, and sits around $1.5150. Against other major currencies Sterling is actually quite weak have fallen against most currencies. It’s only weakness in the Euro that’s keeping GBP/EUR supported at the current near 6 year high. 

The Pound could struggle this year for several reasons which I’ll look at today. Remember that if you want to achieve the best exchange rates, click here to send me a free enquiry, get a quote, and find out more about the commercial exchange rates I can offer.

  • How General Election could affect Sterling exchange rates 
  • When will interest rate go up, and will the change Pound/Euro 
  • QE in Europe and will this make GBP/EUR rates go up 
  • Pound/Dollar will it drop below $1.50 

Election uncertainty could weaken the Pound 

Political uncertainty is one key thing that can weaken a currency, and this year’s election is one of the most uncertain in a generation. Whatever happens it’s going to be very rare indeed. There has only been 2 occasions in the ‘50s when a government in power for more than a few years has increased its share of the vote, and Cameron needs exactly this to win. For Miliband to come back after Labours defeat last time and win a majority has only happened 3 times in the last 100 years, so that’s also unlikely. The 3rd option is a coalition; the last time that happened on two consecutive occasions was over 100 years ago. So any of the possible outcomes will be almost unprecedented. 

This means Sterling could come under pressure this year and fail to move higher, and could keep exchange rates in check. 

Interest Rates may not rise this year 

The Bank of England again kept interest rates at 0.5% yesterday, and a rise in interest rates in 2015 is looking less and less likely, after inflation levels have fallen recently. Last year there was much speculation rates would be going up, but it now seems the UK’s recovery has proved less robust than hoped, so hopes of a rate rise seem to have evapourated. HSBC for example have now pushed back its forecast for the next rate hike to 2016 due to political uncertainty, weaker inflation and an economic slowdown. 

So this along with the election is also likely to keep the Pound from rising. 

ECB closer to doing Quantitative Easing 

One thing that could move GBP/EUR higher however is the EU that could be soon embarking on a QE programme. They have miserable growth and little improvement is on the horizon and doing nothing is not an option. The ECB president is dropping stronger and stronger hints that they will embark on a stimulus programme. Nobody knows if it will work, but three countries that have embarked on it in the past (UK, USA & Japan) all saw their currency weaken. This is partly priced into the value of the Euro and is the one thing that is stopping Pound/Euro dropping away. 

If you need to buy or sell Euros at the best rates, would like a quote, or want to find out more about which way the exchange rate may move, click here to send me a free enquiry today. 

Pound/Dollar rate stops falling, for now 

The sharp decline in GBP/USD has also been halted. The rate dropped into the $1.50’s but has now recovered back to $1.5150. however due to the reasons above, and the fact the United States are likely to push up their interest rates soon, it could drop below the $1.50 mark later this year. 

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