I’ve been warning for the last week or so that it was unlikely that Sterling’s recent strong performance would last, and today we have seen the Pound fall back away from the recent 1 month high vs the Euro. The chart below shows how GBP/EUR has moved over the last 24 hours (see live charts here):
Why has the Pound/Euro rate dropped?
Over the last few weeks, we have seen very robust UK economic figures showing that the economy was performing surprisingly well following the fears that the EU referendum would have a negative impact on the economy. Things like Retail Sales & exports were much better than expected, and this is what had caused the Pound to get close to the €1.20 mark. However these positive figures were as a result of a weaker Pound, which of course is a positive for things like exports. We got to these levels a month or so ago, but within a few weeks rates has slipped down to €1.15.
We’re now seeing a similar thing. This morning figures showed that House Price growth is slowing, and also Industrial and Manufacturing numbers were worse than expected. This brings an end to the run of positive UK data, and with it and end to the decent run Sterling has been enjoying for the last few weeks. The Pound has fallen by around 1 cent vs the Euro on the back of this mornings news.
What next for Sterling exchange rates?
Later this afternoon we have an inflation report by the Bank of England, which will also be very important for the Pound. There had been expectation that the BoE would likely have to cut interest rates again before the end of the year, but in light of the recent robust UK data, it may be that inflation may not be affected us much as thought, meaning it’s less likely we’ll see further monetary easing. This could give the Pound a lift, but we’ll have to wait to see what the happens this afternoon.
We’ve now seen GBP/EUR get close to €1.20 a few times recently before dropping sharply back away, indicating that this is a key level of resistance that rates are struggling to break through. Given this fact, anyone that needs to buy Euros may wish to look at fixing a rate sooner rather than later. While impossible to forecast which way rates will go, there is still much uncertainty over the effect ‘Brexit’ will have on the economy, and so there is a risk that the Pound could weaken further.
Those converting Euros or any other currency back to Pounds are still enjoying rates around 10% better than pre-brexit levels.
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