Sterling fell against the Euro considerably yesterday as a result of poor UK Retail Sales data. We now sit at the lowest levels for over a month. Apologies for the pessimism, but I am struggling to find any reasons that could cause any significant gains for the Pound against the majority of major currencies.
There is the strong possibility of an interest rate hike on 2nd November as indicated by Mark Carney, the governor of the Bank of England (BoE). According to reports there is currently a 77% chance this will occur. I am however dubious on the justification behind the move. Inflation is at 3% and this can only be considered healthy if average growth is growing at a similar pace. Wage growth has remained static at 2.1% following a decline the previous month. Unemployment is also not as healthy as it may appear. Unemployment levels are being lauded as the best since the 1970s, but zero hour contacts have only recently been added to the equation. Zero hour contacts are far from a stable form of employment.
The markets move on rumour as well as fact and there is the very strong possibility a November rate hike has already been factored into current rates of exchange. If a rate hike does occur I would expect small gains, but if a hike does not materialise this is when we could see substantial losses for the Pound. It is important to remember the last Monetary Policy Committee (MPC) vote came in at 7-2 to keep rates on hold and several members have mentioned concerns regarding average wage growth.
If you are selling Sterling it may be wise to take advantage of current levels or consider a Forward contract with a currency broker if your funds are not currently available. This will allow you to book in at today’s rates of exchange with a small deposit.