BUSINESSES are panicking with Sterling falling against the Dollar and the Euro as experts warn it “is likely to drop further” and the “ongoing Labour psychodrama weighs on the Pound”.
The UK is bracing for a drawn-out Labour leadership contest for Prime Minister with Wes Streeting and Andy Burnham set to challenge Keir Starmer.
The Pound is down around 1.5% across the board – with the US Dollar now sitting at a five-week low of near 1.3360 and the Euro back in the 1.14 region which is a three-week low.
The recent fall is putting growing pressure on UK businesses that buy goods or services from overseas and they are panicking about the weakness of the Pound, experts say.
Importers are being hit by rising costs, while ongoing political uncertainty and tensions in the Middle East continue to unsettle currency markets, they add.
Experts say many firms are still failing to properly protect themselves against sharp exchange rate swings, leaving profits exposed when Sterling suddenly weakens.
With inflation still elevated and markets increasingly volatile, concerns are growing that Sterling could remain under pressure for some time.
Sterling is under real pressure
Prem Raja, Head of Trading Floor at Currencies 4 You, said businesses will struggle.
He added: “Sterling is under real pressure, down around 1.5% across the board, with the US Dollar now sitting near 1.3360 and the Euro back in the 1.14 region. For UK businesses buying in Euros or Dollars, that move can hit margins very quickly, especially where costs are fixed and pricing cannot easily be passed on.
“The key is not trying to guess the perfect moment, but having a strategy. Forward contracts, market orders and staged buying can help businesses protect budgets and avoid being forced to buy currency during sharp moves. Too many still leave it until the invoice is due, then panic when the market has already moved.
“We have seen a noticeable increase in concern from businesses recently, particularly importers exposed to the Dollar and Euro. Right now, the market is not really pricing in further Bank of England hikes, more just rates staying higher for longer. Whilst a hike would normally be Sterling positive, concerns around weak GDP growth and political uncertainty are counteracting that support.”
The ongoing Labour psychodrama will continue to weigh on the Pound
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said politics in the UK is causing mayhem for the Pound.
He continued: “The Pound slumped to a three-week low against the Euro and a five-week low against the US Dollar last week, dropping nearly three and a half cents in the process. This drop is driven by a distinct political risk premium and a sharp gilt market sell-off, despite resilient GDP data.
“For exposed small businesses, relying purely on spot markets is destroying margins. Importers face a direct hit to the bottom line, and ‘hope is not a hedge’. Businesses must utilise structural tools to lock in cost certainty and protect cash flow.
“A forward contract can secure an exchange rate up to 12 months out. Automated stop-loss and limit market orders can track the markets 24/7. With Trump sabre-rattling over Iran again, the Pound to Dollar exchange rate is likely to drop further and test the 1.30 threshold.
“This time last week, it was above 1.36. Likewise with the Euro, the ongoing Labour psychodrama at Westminster will continue to weigh on the Pound.”
Paul Denley, CEO at London-based Oakham Wealth Management, said “a weaker Pound is not universally negative”.
He added: “Recent commentary on Sterling says more about market nerves than market reality. The Pound has weakened over the last few days, but that needs context – it was weaker against the Dollar and the Euro at the beginning of March and in November. This is not a 2022 redux. That said, currency volatility matters.
“Businesses importing goods, servicing Dollar debt or paying overseas suppliers can see margins squeezed quickly if unhedged. Larger firms typically protect themselves through forwards, options or natural hedging. Smaller businesses often lack the scale or predictability of cashflow to hedge efficiently, leaving them more exposed to exchange rate swings.
“Currency moves have always mattered for internationally exposed businesses, but a weaker Pound is not universally negative. Many FTSE 100 firms earn globally, so overseas revenues can rise in Sterling terms when the currency weakens.”
Photo by Paul Knight on Unsplash.
