By Lauren Buckner
Interest rate changes and predictions have undoubtedly dominated 2023 so far and therefore been a major influence on exchange rates, but as we see a harmonised pause from the main three central banks of interest from the majority of our clients (US Federal Reserve, European Central Bank and Bank of England) investors now need to drill down to the detail when it comes to deciding upon which ‘horse’ to back. All three of the central banks mentioned have paused at interest rates which are lower than predicted as we edge towards the end of 2023, so which economy fares better?
For the UK this morning we have had GDP for July through to September coming in at 0% – the economy flatlined. Although clearly not ideal, the Pound still trades within its recent range against the euro as many economists had expected the UK economy to contract over Q3. It seems to be a mixed bag for UK plc with both manufacturing and construction holding up while housing sales/prices and consumer spending begin to fall.
Although more positive than the EU figure of a 0.1% decline in Q3 2023, there are fears about what the final quarter may have in store as consumers battle continued high inflation and higher interest rates than their European counterparts. A loss of consumer confidence over the Christmas period can have a significant impact on the end of year economic performance. Business spending is also feeling the squeeze as higher transportation, rent and energy costs continue. We are seeing talk this morning of a UK recession being more likely. With the Pound still over 1% higher than the euro for the year and around the five year average, the buying opportunity here should perhaps not be overlooked in favour of a prediction for an improvement through to year end or early 2024.
For the US, GDP is strong with the economy growing 1.2% over the last quarter which will be adding to the increasing dollar strength we have seen this week. The Dollar had softened last week following the Federal Reserve’s dovish stance on future interest rate policy but seems to be settling back around its recent range versus the Pound.
As we end this week it would seem that we are in for much the same when it comes to the value of Sterling however, as the outlook turns more negative for the UK those holding off on buying may want to remember that it’s often ‘better the devil you know’ as we move towards year end, please get in touch with the team at A Place in the Sun Currency to discuss any upcoming requirements and the options to secure your currency in advance.