Despite a slight uptick in GBP/EUR rates earlier this week, the downard trend for the Pound has now returned, and we have seen the Pound fall further. Pound/Euro rates have now dipped in to the €1.11’s, while Pound/Dollar rates are more supported at $1.2650.
Why has the Pound fallen further?
There are two reasons. The first is this weeks meeting by the Bank of England. As expected, interest rates were left on hold at the low of 0.75%. The BoE are still saying that they expect rates to gradually rise assuming that the UK avoids a No Deal Brexit, but despite a slight rise for the Pound on Thursday due to these comments, the gains were not to last. Part of this was the fact that they also pointed out UK growth was due to fall as the year goes on, and the lower forecasts in this regard weighed on the Pound.
The other reason for Sterling’s drop is the political situation in the UK. The leadership contest is now down to 2: Boris Johnson and Jeremy Hunt. At the moment it looks like Boris will win the keys to number 10 by some margin, and this is unsettling the currency markets. This is because a Boris government increases the chances of a ‘No Deal’ brexit, and this uncertainty is dragging the Pound lower.
What could happen to the Pound if Boris becomes PM?
Boris will try and re-negotiate the deal with the EU, but it remains to be seen if he will be successful. Right now the EU are sticking to their guns and stating no further negotiation will be entered into. The current deal has no chance of getting through. If nothing changes, then the UK leaves without a deal and this would almost certainly send the Pound crashing lower.
If they will look at the deal again, then perhaps there can be some amendments that will mean MP’s can vote for it. With the top jobs in the EU all changing soon, perhaps this will be the case. However, Labour are hell bent on voting against anything the government will bring, in order to try and force a general election. So all in all, it’s likely to be at least a month until BoJo is confirmed, and then we have only a few months for him to try an get a better deal out of the EU. As things stand, a No Deal scenario becomes closer by the day, and for this reason the Pound is likely to continue falling.
Protect yourself against the Pound falling further
If you need to convert Pounds to Euros, then one way of avoiding any further weakness in exhcange rates is to freeze the rate now with a Forward Contract. We can guarantee today’s rates for up to 2 years, and the rates we would offer you are likely to be considerably higher than your bank or existing broker might offer, by up to 2% or 3%. You could save thousands of Pounds, so for a free no obligation quote, or to discuss our services in more detail, contact us today.