Trading floor manager at Currencies Direct, highlights the financial trends for this month
The heady levels of GBP/EUR over 1.40 seen in late 2015 now seem like a distant memory. The pound has also tumbled against a basket of other currencies demonstrating an overall weak trend. So what is behind such a sharp move lower given we now see GBP/EUR in the mid 1.20s?
As is normally the case with the currency markets, there are a few independent drivers that have together created a perfect storm for the pound. Firstly, the significant fallout in the global economy, particularly from China and falling oil prices has created a ripple of fear that has permeated the markets. In an environment of fear the pound tends to get sold and we have seen this selling pressure almost constantly in 2016 due to volatile and negative global conditions. To add to this, we have also had clarification on the EU referendum vote which is set for 23 June. The uncertainty behind this vote has already started to undermine appetite for the pound. A potential Brexit may or may not be a good thing for the UK economy and this uncertainty is draining value from the pound.
The pound dropped sharply following the news that London mayor Boris Johnson is backing the call for a Brexit. The final reason for a lower pound is down to sentiment from the Bank of England, which has hammered home the point that interest rates are not set to move higher any time soon. It could be argued that the pound was overvalued in late 2015 anyway and this move lower is a welcome correction which will support exports and help drive the UK economy, and reduce the deficit.
Looking ahead we are set for a very interesting few months. We have the run-up to the referendum and the markets will look to get an idea of how polling is leaning. We also have the prospect of further easing by the European Central Bank (ECB) to curb falling inflation. Throw the activity of the US Federal Reserve and ongoing market volatility into the mix and it is set to be a bumpy ride ahead! currenciesdirect.com
On page 27 of the March issue, we stated that the property in Céret priced at €249,950 could be converted into two apartments with separate entrances. The property can already be used as two apartments and already has separate entrances. We apologise for the error.