Coronavirus and interest rate cuts
The sell-off in the Pound has been astounding. GBP/EUR exchange rates shed four months of gains in the space of just five days. The six-cent movement has been the largest weekly loss since the October 2016 flash crash.
The main driving force behind the Pounds demise seems to be clear, the Corona virus. While its important to note that the UK economy itself might be relatively immune to this virus, the Pound is not so immune. This is mostly due to it being propped up by substantial inflows of global investment. If these flows dry up- which seems to be the case when investors run scared of a virus outbreak. The Pound proves to be one of the most vulnerable currencies.
The Pound is also being weighed down by a spike in expectations that the BoE (Bank of England) will cut interest rates this March in response to the prospect of a global economic slowdown.
Expectations for a rate cut rose on Monday when a Bank of England spokesperson told Bloomberg that the Bank will take "all necessary steps to protect financial and monetary stability. The bank continues to monitor developments and is assessing the potential impacts".
If you or your company has a Euro exposure it could be worth looking at a short-term forward contract. This fixes the rate of exchange within your timescale, protecting you from any further adverse market movement. This is also a great tool for anyone buying good and services in Euros as it gives you a fixed price to work with.
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