9th February 2016
Sterling hit a new one-year low today at 1.27 pounds to the euro dealing a blow to the spending power of holidaymakers travelling to Europe this coming half term.
The decline followed the publication of data showing the UK deficit narrowed somewhat in December, but remained remained stubbornly high as exports fell for a third month running.
Andy Scott, economist, HiFX the foreign exchange specialist, says: “Sterling hit a fresh one-year low against the Euro on Tuesday as the stock market sell off continued to lead to an unwinding of bets against the single currency, driving it higher across the board.
“With UK and German trade data earlier both coming in slightly worse than expected, it was financial market turbulence and investors wanting to get out of risky trades for the Euro to weaken that drove GBP/EUR down to 1.27, its lowest since January 2015. Sterling has now fallen over 6% against the Euro so far this year and having broken below the pivotal 1.29 level yesterday, risks now exist to 1.25.
“The pace of this move, and the fact that the majority of global banks have been calling the Euro to weaken this year, once again highlights the importance of corporates having some level of hedging in place at all times. Whilst we have been highlighting the risks for a move lower towards 1.25 for GBP/EUR this year, the first and foremost consideration for a businesses should be managing their FX risk.
“The forecast for a currency to strengthen or weaken can play a part in the decision whether to put in place additional hedging or not, but it shouldn’t prevent having any hedging in place. We continue to come across businesses which don’t hedge their currency risk, or only hedge if it’s favourable to do so. The past couple of months have shown, this can have very large consequences for the bottom line and could mean the difference between profit and loss.”