Exchange houses in the UAE reported a surge in remittances to the UK after the British pound fell to its lowest level against the US dollar since July 2020, giving British residents a window of opportunity to take advantage of favourable exchange rates to send money home.
There has also been an increase in demand for physical pounds from people travelling to the UK who want to take advantage of cheaper spending, Hasan Al Fardan, chief executive of Al Fardan Exchange, said on Thursday.
“We have seen an increase in demand for remittances from UK expats in the UAE when GBP broke the 1.3000 level,” he said.
“British expats in the UAE will now receive more value in GBP for the same amount that they remit in dirhams. Tourists started asking for more GBP in cash just after the relaxation of Covid-19 norms and much better rates.”
The fall in the pound comes amid rising inflation, a cost-of-living crisis and growing speculation that the British economy will cool, said David Madden, senior market analyst for financial services provider Equiti Capital in London.
The pound’s most notable fall is against the US dollar, he said.
“Also playing into the mix is the fact the Bank of England has increased rates three times since December 2021 and the markets are pricing in more hikes. Should the cost of living eat away at demand, a series of rate hikes would put more pressure on the economy, hence the bearish move in sterling,” Mr Madden said.
The GBP/USD consolidated just above 1.2500 overnight and eased to 1.2510 in Asia, said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda.
Since then, the currency pair had edged up to 1.2561 at 11:45am UAE time on Thursday, according to Oanda.com.
“EUR/GBP selling and GBP/YEN buying is adding some support to the sterling today, but have not been enough to spark an overdue relief rally,” Mr Halley said.
“Any relief rally will be short term as the broader technical picture is now signalling further losses to 1.2200 and potentially sub-1.2000 in the weeks ahead.”
GBP/USD would need to reclaim the 1.3050 level to change its bearish outlook, he said.
Lulu Exchange has recorded a 5 per cent increase in the volume of sterling currency remittances over the past week, said Thampi Sudarsanan, assistant vice president of the exchange house.
“The current drop in the pound is because of the US dollar strength. The current support for GBP/USD pair is around the 1.2480 level. Next support is around 1.2350 and 1.2220 levels,” Mr Sudarsanan said.
Meanwhile, Al Ansari Exchange reported a 10 per cent jump in remittance outflows to the UK this month, according to Rashed Al Ansari, chief executive of Al Ansari Exchange.
The cost-of-living crisis in Britain, local inflation, the Russia-Ukraine conflict as well as fears that Covid-19 restrictions in China would hurt world growth are pressuring the weaker pound, Mr Al Ansari said.
“British expats can use this chance to pay off their debts and mortgages in the UK or increase investments. This is also a good time to purchase property or pay tuition fees in the UK,” he said.
“Travellers who plan to visit the UK this summer also tend to take advantage of the exchange rates by purchasing British pounds or loading it on the multicurrency prepaid travel card.”
The pound is likely to slide to levels not seen since the early months of the coronavirus pandemic because there is at least a 50-50 chance of a recession in the UK, according to Standard Bank, Africa’s biggest lender by assets, Bloomberg reported.
The comments come after the International Monetary Fund said that Britain’s inflationary shock is the “worst of the two worlds” as it faces a tight labour market, as seen in the US, as well as Europe’s energy crisis.
The pound was already under pressure after a number of reports, including purchasing managers’ data and consumer confidence, suggested that the economic recovery in the UK is faltering, Bloomberg said.
Meanwhile, the yen slid to the closely watched level of 130 per dollar on Thursday after the Bank of Japan reinforced its dovish policy, saying it would carry out fixed-rate bond buying every business day to defend its 10-year yield target.
The yen’s drop spurred wider foreign-exchange swings: the dollar extended an advance and the euro retreated along with the pound.
“Risks of a dovish repricing in the BoE rate expectations and potentially some re-emergence of negative Brexit-related headlines continue to pose downside risks to the pound in the coming weeks and a test of the 1.2500 support cannot be excluded,” ING analysts said in a research note.
