Following the EU Referendum and the UK’s decision to leave to EU the Pound has fallen to record lows against most major currencies. But does Sterling have further to drop? Will the recent predictions of parity with the Euro come true?
While Brexit is likely to continue to weigh on the value of the Pound recent UK data hasn’t all been bad. We saw strong employment figures this week, with unemployment dropping to 4.5% which is its lowest level since the mid-seventies. We have also seen positive retail sales and slightly improved average earnings numbers, although inflation is currently outperforming average earnings which is a worry for the cost of living in the UK.
With interest rates so low there is certainly potential for a rise in Sterling’s value, should the Bank of England choose to raise rates. However, they are not currently keen to do this as it would add to the rising cost of living at a time when household debt is also starting to appear in the headlines.
Brexit ‘positioning’ documents
This week saw the release of the first of a series of 12 ‘positioning’ documents that aim to outline the UK Government’s plan for Brexit, with more to follow in the coming weeks. Although these haven’t impacted Sterling value massively, if they are well-received the sentiment towards the Brexit negotiations could become more positive. If nothing else, they will bring more certainty to the plans for Brexit, which can be seen as positive.
Pound to Euro outlook
Sterling weakness is not the only reason that the GBP/EUR exchange rate is sat around 1.10, data from the Eurozone has largely been positive which has in turn strengthened the Euro.
There is definitely a case to say there may be further Euro strength on the horizon, however yesterday commentary from the European Central Bank (ECB) suggested that they would not be pleased with a very strong Euro. Personally I feel the Pound is undervalued due to the uncertainty that surrounds it, so given a bit of time I believe the GBP/EUR rate will recover back into the later teens providing it finds support around the 1.10 mark as it currently is.
Pound to US Dollar Outlook
Following the US raising the interest rate the US Dollar was performing well and the positive outlook suggested further rate hikes looked to be on the cards in 2017. However, the GBP/USD rate is now sat at 1.28, having risen from lows of 1.20 earlier in the year. This is largely due to declining confidence in the Trump administration, as well as potential conflict with North Korea. I believe the GBP/USD rate could fall again in the coming weeks providing the latest furore surrounding Donald Trump blows over.