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The pound in your pocket

In September the Bank of England released a new five pound note, but following continued speculation after the EU referendum and the apparent leaning towards a ‘hard Brexit’, that five pound note is now worth even less.  The pound has slumped to a 168 year low when comparing it on a trade-weighted basis against its peers, and the volatility it has experienced since the referendum doesn’t appear to be going away any time soon.

Friday 2 December 2016

The pound in your pocket

In September the Bank of England released a new five pound note, but following continued speculation after the EU referendum and the apparent leaning towards a ‘hard Brexit’, that five pound note is now worth even less.

The pound has slumped to a 168 year low when comparing it on a trade-weighted basis against its peers, and the volatility it has experienced since the referendum doesn’t appear to be going away any time soon.

With global currencies there are many variables at play, and in sterling’s case these appear to be swayed more to the downside at present. There is huge uncertainty over the terms of Brexit, the impact this will have on growth, on investment and hiring decisions, and concerns over how high UK inflation may go as price rises are gradually passed on to consumers, as the recent Unilever/Tesco/Marmite spat demonstrated.

Following the EU referendum, the Bank of England acted quickly by cutting interest rates and restarting their quantitative easing program, despite complaints from senior politicians that these policy measures cause more harm than good, and so far the economic data in the UK has been ok, though it will take at least another quarter to understand what the early implications are.

It’s not all doom and gloom though, and one area which has seen a benefit is tourism, and spending around NI border towns is also reported to be on the up. The picture for exporters is less clear however, as goods manufacturers who import many of their components or are faced with higher energy costs may see a squeeze on margins, so the boost for them may not be as big as expected.

This month the central banks of Europe and the United States make their policy decisions. The US are widely expected to raise their interest rate, but if the European Central Bank do not extend their current easing program, or indicate they are to slow down the rate of stimulus, there is a risk that sterling falls even further v the euro.

Markets don’t like uncertainty, but one thing that does seem certain is that sterling will likely remain volatile in the weeks and months ahead. 

At Bank of Ireland Global Markets we can help your business manage foreign exchange risk and grow internationally both safely and profitably. For more information and to speak to a member of the team call 02890 322778 or e-mail sarah.mitchell@boi.com.

Friday 2 December 2016

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