Excel Currencies Blog

Since January 7th, GBP v EUR has fallen 1% & GBP v USD has been devalued by 2%.

The cause and the cure?

Well, both will be subjective so I will stay well clear of answering these..

Instead, I will say that it's too soon to say the worse is over and that this headwind is here to stay. This means Sterling is vulnerable both near & long term. 

£-$ has hit a 13-month low (far sooner than anticipated which in my view doesn't bode well for the uncertain months ahead) & £-€ is trading at a 2-month low (not the end of the world and it remains close to 1.20 mid-market which is good).

During the Truss mini-budget of 2022, Sterling and gilt yields moved sharply in opposite directions. Market shock/panic took over and investor confidence in the UK and its Government fell off a cliff.

However, that Budget never saw the light of day and both Truss & Kwarteng were replaced which saw things rebound and stabalise. 

This time, the new Government, party & Chancellor have doubled-down on their non-negotiable fiscal stance. An increase in employers national insurance due April has already put the brakes on growth.

UK GDP in the first half of 2024 was the strongest of the G7, by the end of last year it had evaporated to the worst. With lower growth, there will be lower taxes collected, whilst the rising cost of debt rises, a clear problem.

We expect to see public sector funding cut and UK interest rates to fall more than widely expected this year, which will be GBP negative on release. 

For now, don't expect any immediate comeback from the Pound and misery could yet be compounded with the economic data due out next week..