Following the Brexit vote, the pound now finds itself at a 31 year low against the dollar. Despite better than expected economic figures that have come out since June, sterling has continued to lose value and is unlikely to recover much ground until some big questions have been answered.
There are some positives with the cheaper pound, such as our export market which has improved as our goods are now more cost-effective to those outside of the UK and our tourist industry has also blossomed. In the property market, overseas property buyers are reaping the rewards as the relative prices of property means that buyers can save thousands of pounds. As an example, on a £1m property the difference between last year’s highs and this year lows is about $382,000 for a buyer who is exchanging dollars.
There is a lot of speculation that states that the pound will continue to drop but nobody can confidently predict by how much or when this will happen. The Bank of England has already cut interest rates to 0.25% and warned of further easing before the end of the year – this is priced in to the current value of sterling but should the Bank of England look to ease monetary policy more than expressed, then this will cause further devaluation.
The pound has enjoyed rallies, and will continue to do so, but this is mostly down to ‘short-covering’, where those who sold the pound higher up are now taking profit and buying back the cheaper pound. Whenever there is a rally, another wave of selling brings the rate back down again and we expect this to continue well into 2017.
The above factors and politics will move sterling for the foreseeable future.
The view from Chestertons FX is that until Article 50 is triggered - currently pencilled in for March 2017 - volatility will continue and the pound will remain on the back foot. There are also other events that could also impact the value of the pound and which we are monitoring - such as the presidential election and the worries in Europe about Deutsche Bank, Italian debt and low inflation .
If you need to either sell or buy sterling, then you are advised to speak with a dedicated dealer, who can create a plan that will mitigate risk through buying/selling strategies and forward contracts.
To talk to Chestertons FX about your currency requirements, email Jamie.Hughes@chestertonsfx.com or call 0203 763 9874