The Pound continues to post hefty losses against its Euro and US Dollar counterparts and could be set to extend its losses as we approach the anticipated Spring Budget from the Chancellor Philip Hammond tomorrow.
Sterling has lost 2 cents against the Euro, and 3 cents against the US Dollar since the start of the trading session last Wednesday. A number of key economic and political factors point to further slides for most currencies grouped to the Pound.
Concerns are fading around the French elections next month, with reports suggested that Marine Le Pen will win only 8% of the popular vote in the second round. Much of the recent anxiety around the Euro has been driven by political factors that could lead to France leaving the EU, but with Le Pen seemingly out of the picture, Euro investors can find some safety in the Eurozone’s future.
In contrast, US Dollar investors have far more appealing reasons to keep funds put, the FED are preparing to raise interest rates again and the economic data supports it. Reports suggest an 80% chance of a hike in March, and Friday’s Non-farm payrolls could sit a make or break scenario for the Chairlady Janet Yellen.
Will the Pound weaken further?
In my opinion, tomorrow’s Spring Budget from the Chancellor will present further losses for the Pound, with some reports suggesting a number of worrying announcements that may further rattle Sterling exchange rates.
The Chancellor will reveal a Brexit fund pot worth £60bn, to be used in the event of economic down turn once the UK begins its divorce later this month. Growth forecasts for the UK have been upgraded by the OECD, from 1.2 to 1.6% this year, while this may be seen as a positive trend it must be weighed against the rising costs to consumers, which could dampen consumer and business spending.
There are further cuts to be announced, and as such GBP investors will be faced with the decision to move funds into less riskier currencies, the US Dollar being a favourite given its current economic climate.
GBP/EUR exchange rates may dip below 1.15 tomorrow, but may regain traction as we approach the French elections when Marine Le Pen is expected to win the first round. GBP/USD in my view, is set to extend its losses well below the 1.20 mark, and may even reach levels of 1.15-1.17 by the end of March.