EDITOR’S NOTE: The Pound has been volatile against the Euro in recent months, and started this year on the slide against the Euro. Foreign currency exchange specialist Luke Trevail looks at the factors driving exchange rates, and what the future might hold.
The festive period is a great time to kick back, relax and enjoy a drink followed by abstinence in January, but it seems that British Chancellor George Osborne is not partaking in a dry-January as he predicts the UK faces a ‘cocktail’ of serious threats throughout this year as a forecast slow down in the global economy will only add to the financial hangover that it seemed Britain had managed better than others.
Osborne told the BBC that things are far from “mission accomplished”, and that “2016 is the year of mission control” when it comes to protecting the work that has been done to prop up our economy. This good work has given the pound a fair run in the market when it comes to GBP-EUR, until recently that is.
Interest rates in the UK look set to be raised later this year, but although the picture on the domestic front looks solid, it’s the risk of significant challenges such as Middle East tensions, a slowdown in China, and low commodity prices that could really affect global markets and knock the pound off the perch that it clambered onto after some good work by the government and Bank of England in recent months.
Rates against the euro have already started to move due to this threat, and we’ve lost 3 cents this week alone, touching lows of €1.3360 with maybe more to come.
Trading in the New Year needs to remain cautious. On the first of December we were at €1.40, but at the time of writing we’re close to €1.30 and with the news from the Chancellor not likely to instil any confidence, there could be more downside for the pound to come.
When dreaming of a better price for Sterling, however, remember that last year we traded above €1.40 on only three occasions, and that was the first time in seven years that such rates have been available. Seen in those terms, the pound is still near its multi-year highs.
With all the uncertainty around in the first week of this year trading decisions remain challenging, but as usual the best course of action is to stay well informed and keep in close contact with your foreign currency broker to take advantage of the opportunities as they come along.