When will the Pound recover? Yesterday saw another sharp fall in the value of sterling – losing over 2% of its value against both the Euro and US Dollar.
The million dollar question for anyone needing to make international bank transfers is – when will the Pound recover?
The problems manifested in sterling’s decline over the last few months are many. First, interest rates in the UK, which were slashed again only last week, have fallen dramatically from over 5% to below 1%. International investors therefore tend to move moey out of sterling-denominated assets and into economies where interest rates are relatively higher.
As demand for the Pound falls, so does its price, meaning other currencies relatively become more expensive, in the guise of lower exchange rates.
Secondly, confidence in the UK economy is nearing all-time lows. With every piece of bad news about the banks (today’s increase in the government’s share in the Lloyds Banking Group to 65% being the most recent), confidence falls yet lower, and bad sentiment in the UK economy is bad news for the Pound.
Now, with quantitative easing on the agenda, the Treasury is introducing more money into the system. This hardly sends a message of financial strength through the world markets.
“Sterling will remain under pressure because of the funding concerns”, says Simon Derrick, chief currency strategist at Bank of New York Mellon.
So until we have rising interest rates and restored confidence, the Pound is likely to continue to suffer. How long will this take? That’s anybody’s guess, but there is no miraculous recovery in sight, so poor exchange rates are probably here to stay for the foreseeable future.
Of course, if you need to send money to the UK from abroad, the news is good – your foreign currency buys you more sterling than at any time in recent economic history.
But for companies importing from abroad, or buyers of overseas property, the outlook is bleak. Waiting for the recovery might prove ultimately fruitless.
However, with falling property prices overseas, at least Brits with their heart set on a place in the sun might be able to negotiate a bargain in local currency, to make up for the poor exchange rate when paying for their new asset.
Some exchange rates – for example South African Rand transfers – are still at reasonably good levels, but for the most part, the low Pound looks set to be around for some time yet.
