All the day’s economic and financial news, as UK holidaymakers pay the price of hard Brexit worries
- Introduction: Sterling at 2018 lows vs dollar and euro
- Full story: Pound pulled down by Brexit worries
- What should holidaymakers do?
- Pound has dropped to $1.285, and €1.107
- Weak pound means foreign holidays cost more
- Russia’s rouble has hit its lowest level since 2016
The Bank of England should share some of the blame for the pound’s recent weakness.
Last week, the BoE raised interest rates (which ought to strengthen sterling), but also hinted that it might cut them again if Britain fails to reach a Brexit deal. City economists have concluded that borrowing costs are unlikely to rise again for some time – making the pound a less attractive asset.
A few notes of caution to those getting excited today about the weak pound. First off, this is not ALL down to Brexit and fears of a no deal. If anything it’s as much down to interest rate expectations. The falls really started after the BoE’s Inflation Report last Thurs pic.twitter.com/FZ2T5I0qeY
Hannah Maundrell, Editor in Chief of money.co.uk, has compiled some helpful advice for British holidaymakers heading abroad this summer:
Jeremy Thomson-Cook, chief economist at WorldFirst, says the pound is being dragged down by the ‘circus’ at Westminster, and weak data on the economic front.
There are not many reasons for investors to hold on to sterling at present – economic data is weak, the political picture is a circus and overall, sentiment is poor.
“On top of this, we are still concerned that the worst is yet to come with no-deal Brexit noises likely to reach a crescendo as we get closer to the European Council meeting in October, unless an Article 50 extension can be agreed upon.
Remember what happened to sterling as it became clear that we had voted to leave the EU despite most market participants still believing that Brexit would enable the UK to remain a member of the single market with broad equivalence of regulations in place?
Russian assets are being pummelled this morning, after America announced fresh sanctions over the novichok poisoning case in Salisbury.
The US said it would impose sanctions later this month, after concluding that Russia used the Novichok nerve agent to poison Sergei Skripal and his daughter Yulia.
The period of sideways trading which lasted for four months seems to be over for the Ruble. The Russian currency fell more than 3.3% on Wednesday as Trump’s administration proposed fresh sanctions following the poisoning of a former Russian agent in the U.K.
The decline in oil prices also helped to intensify the fall in the Ruble and with such uncertainty, investors will need to price in further risk premium on Russian assets. Investors will likely ignore the Russian economic fundamentals in the weeks ahead and focus on political developments.
The currency exchange booths aren’t the only places causing holidaymakers grief this summer.
Budget airline Ryanair warned yesterday that hundreds of flights will be cancelled on Friday. Pilots in Netherlands, Germany, Sweden, Belgium and Ireland are striking as they push for better working conditions.
ATC Update – August 9th: pic.twitter.com/Mf7bUwXEqo
At $1.2850, sterling is 20 cents below its levels before the EU referendum in 2016.
Some City economists have predicted the pound would tumble back to $1.20 in a ‘hard Brexit’ scenario.
It’s worth noting that the pound has lost ground against most major currencies in recent weeks, as Sky News’s Lewis Goodall shows here:
Little noticed in Westminster but sterling is struggling. Lowest level against the dollar for a year. Over the last month lost value against every major currency. That’s despite an interest rate rise. Markets slowly getting the message that prospect of no deal is a serious one. pic.twitter.com/hbu5OHWur2
Sterling’s slide means that holidaymakers are actually getting less than one euro to the pound, if they change their money at the airport.
The Independent’s Alex Watson explains:
Exchanging currency at the airport has always been expensive, but holidaymakers are now facing exceptionally poor exchange rates if they wait until just before they fly to buy.
Foreign exchange company Moneycorp (who have locations in Bristol, Central London, Gatwick, Stansted, Southampton and Southend airports) were offering 0.94 euros to the pound at Gatwick airport, according to The Sun. This rate means holidaymakers would get 94 euros back when exchanging £100.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Sterling suffered greatly yesterday as Brexit-related fears were doing the rounds. GBP/USD fell to a level not seen since late August last year, and EUR/GBP hit a level last seen in November 2017. The pound is still coming under pressure from Liam Fox’s comments – the possibility of a ‘no-deal Brexit’ is 60-40.
Dealers are extremely fearful about the prospect of the UK leaving the EU without an agreement in place, and until some clarity is provided, the pound would remain weak.
Although the government has insisted that it still expects negotiations with the EU over the next few months to prove successful, currency traders have been prepared for a deal not to emerge and are now hedging against the possibility of the hardest possible Brexit.
With less than eight months to go before the UK’s planned departure date, financial markets have now started to take seriously the chances of chaos at the borders and damage to supply chains
Ongoing political and economic uncertainty created by the negotiations to leave the EU make it difficult to predict market volumes for the rest of the year.