Pound sterling currency exchange rates took another dip yesterday afternoon following the Bank of England interest rate meeting and press conference. As expected Governor Mark Carney kept interest rates on hold. This was no surprise. What caused the pound to fall was the post decision press conference. Mark Carney warned about a recession and downgraded growth forecasts.
It said the UK economy was expected to grow by 1.3% this year, down from a previous projection of 1.5% in May. The Bank also cut its outlook for growth in 2020 to 1.3%, from a previous projection of 1.6%.
These forecasts are based on the UK leaving the European Union with a Brexit deal – however it suggested growth could be much slower in the event of no deal.
This stark warning caused the pound to fall to 1.09 GBP/EUR and GBP/USD to 1.2090.
Will the pound sterling currency continue to fall?
In the short term I believe it will. It is unlikely we will she any developments with regards to Brexit throughout the course of August, and therefore the pound is unlikely to see any dramatic recovery inthe short term.
A slightly longer term view and I am being optimistic. New PM Boris Johnson says we will leave the EU on the 31st October with or without a deal. Likewise the EU are saying they are not willing to re-negotiate and we seem to have reached a stalemate. I think both parties will back down and negotiations will begin. Of course there is no guarantee a new agreement can be reached but I am being optimistic. If a deal is reached we should see a turnaround for the pound.
Do you need to exchange currency?
If you are worried about the Pound falling, then fixing the rate with a ‘Forward Contract’is an option worth considering. It removes your exposure to the volatility and allows you to budget. This is very useful when purchasing property overseas for example.
Those that are less risk averse and think the rate could rise, can consider a Stop Loss order. This instructs your broker to purchase your funds if the rate drops below a pre-agreed level e.g. €1.09. You then have a worst case scenario while still allowing you to take advantage if the rate of exchange moves in your favour.