Negative growth puts further pressure on the pound

Negative growth puts further pressure on the pound

The pound has had a negative start to the week losing ground against the euro, dollar, and a basket of other major currencies. The Bank of England’s latest interest rate hike did little to support the value of the pound. Sterling lost value against the euro and dollar almost immediately after the banks statement, a week ago today. Downward pressure on the pound was further fueled by the European Central Bank’s decision to raise rates by 50-basis points an hour later.

Towards the end of last week’s data heavy session, we saw the release of services and manufacturing PMI data from the UK. The UK data was a mixed bag with positive news that the services industry is no longer contracting; however, the manufacturing data was worse than expected coming in at 44.7 vs expectations of 48.5.

Retail sales data didn’t paint a pretty picture for the UK either. Month-on-month sales are down -0.4% worse than expectations of -0.3%. Year-on-year sales are down -5.9% vs expectations of -5.6%.

This week’s session has been less data heavy but the negative sentiment surrounding the pound has continued to push exchange rates lower. Growth figures released earlier this morning show UK GDP shrunk in the last quarter by -0.3% vs expectations of -0.2%. The data supports the forecast that the UK economy will fall into a technical recession early next year.

Year-on-year GDP is positive but lower than expectations of 2.4% coming in at 1.9%. The negative data has pushed the pound lower against the euro and is now trading within range of the 2-month low.

For clients looking to sell euros and buy sterling, the rate reversal may pose a window of opportunity. €100,000 is buying £2200 more vs the low of the last 2-months.

We have several tools available at Lumon to help you minimise currency risk, via market orders, forward contracts and rate alerts.

If you have an upcoming currency requirement and would like to be kept informed of developments, please feel free to contact me directly on [email protected].

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