Currency Update from Currencies Direct - Costa Del Sol

  • GBP/EUR & GBP/USD close to 1-year lows as Brexit bites

    Staying on top of the latest currency news can help you time your transfers more effectively, so find out what you should be looking out for over the next couple of weeks…

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    An interest rate hike from the Bank of England (BoE) was not enough to offer any significant support to the pound in the first half of August.

    After falling to its lowest level since September 2017, the pound to euro exchange rate managed to regain some of its losses, however, thanks to weakness in the single currency.

    On the other hand, the GBP/USD exchange rate plunged to a one-year low of 1.27 as safe-haven demand kept the US dollar in a buoyant mood.

    What’s been happening?

    The BoE’s decision to raise interest rates to 0.75% at its August policy meeting did little to benefit the pound.

    As the move was largely telegraphed, the impact on GBP exchange rates proved limited in spite of the unexpectedly unanimous nature of the decision.

    Investors were more concerned by comments from BoE Governor Mark Carney regarding the increasing risk of the UK leaving the EU without a deal in March 2019.

    After international trade secretary Liam Fox also noted that the odds of a no deal Brexit currently stand at 60-40, this prompted further selling of the pound as market confidence plunged.

    However, the GBP/EUR exchange rate found some support last week as a fresh financial crisis erupted in Turkey.

    With the Turkish lira in freefall. fears of contagion spreading into the European banking system left the euro on a weaker footing.

    Increased market risk aversion helped to boost the US dollar, meanwhile, even as the Trump administration continued to pursue more protectionist trade policies.

    What do you need to look out for?

    July’s UK inflation data may offer the pound a rallying point, with forecasts pointing towards the headline consumer price index rising from 2.4% to 2.5%.

    While the BoE looks set to leave monetary policy on hold for some time to come thanks to Brexit-based uncertainty, an uptick here could boost GBP exchange rates.

    If price pressures show signs of easing, however, investors may see less reason to favour the pound over its rivals.

    Meanwhile, until the financial crisis in Turkey eases the euro is likely to retain a negative bias.

    Confidence in the outlook of the Eurozone economy could still strengthen, however, if second quarter gross domestic product data proves positive.

    As long as market risk appetite remains elevated the US dollar looks set to maintain a stronger footing.


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