London: The pound is suffering a record run of losses against the euro just as Brits get ready for the summer holidays.
Sterling has slid more than 5 per cent against the euro in the past 10 weeks, handing UK holidaymakers on the continent a hefty foreign exchange disadvantage. And it’s fared the worst among 32 major currencies tracked by Bloomberg in the past three months, making any longer-haul trips from Brazil to New Zealand more expensive too.
“It’s a real grim time to look at holidays and obviously we’re coming right into the holiday season,” said Phil McHugh, a trader at Currencies Direct Ltd,. “We saw high levels back in March this year, it would have been great if people had the foresight to buy their holiday money then. I know I didn’t and I’m going away in a couple of weeks.”
The UK currency had a strong start to the year and then has tumbled to near the lows seen in the aftermath of the 2016 Brexit referendum. Political risk has flared after Prime Minister Theresa May decided to step down, with both candidates to replace her raising the prospect of crashing out of the European Union if no Brexit deal is reached.
Economic data has also started to turn more gloomy and the Bank of England is sounding cautious on the outlook.
McHugh, who co-owns a property in Spanish resort city Marbella with his family where he will head for his summer vacation, sees the pound remaining pinned in place against the euro until Parliament returns from recess in September. The pound has fallen to trade near 90 pence per euro, from 85 pence in May. Against the dollar, it’s around $1.25.
A long hot summer for the pound
“We’ve got a summer, possibly an autumn of uncertainty ahead of us, so it’s hard to find a reason for sterling to go up against anything,” said Societe Generale SA strategist Kit Juckes. He will be celebrating his daughter’s 23rd birthday this weekend with sparkling English wine “because of FX”.
“The pound’s only defence overall then is that it’s cheap but that doesn’t really help much yet for euro-sterling,” he said.
For Amundi Asset Management’s head of global currencies Andreas Koenig, the lack of clarity around what happens with Brexit, ahead of the October 31 deadline to leave the bloc, means it is still too risky to take pound positions.
He lives in London during the week and commutes back to Europe to spend time with his family each weekend, meaning the drop in the exchange rate is a bonus for him. But he sees the collapse in the value of the pound since its level of 70 pence per euro in 2015 as undoubtedly having a negative impact on others.
“If you go abroad on vacation or import products from abroad it gets more expensive, and people are directly feeling and experiencing that,” said Koenig.