May has not been the most appealing month on record for the pound sterling forecast with a 4.3% decline against the euro over the course of the month epitomising the tough path the hard battle for the British currency to maintain some form.
Will June be a better time for pound sterling or will the numerous difficulties faced in May only become more of a concern for investors when debating whether or not to back UK PLCs?
The reasons for the decline in May are all in part linked to the Coronavirus where the knock-on economic, political and health effects for Britain all appear to be felt more severely than elsewhere. The UK has suffered more deaths at 559 deaths per million people compared to the US at 301 and Europe at 279. This might be because of the dense population in the UK, but has given policy makers and the health service an added challenge.
Politically, Boris is struggling in the wake of accusations of too much reliance on advisor Dominic Cummings and the UK government being too slow to react to the crisis in February and March. Economically, the Bank of England is now considering negative interest rates which the mere mention of has seen sterling levels fall.
Aside from Coronavirus and the difficulties and extra stresses it is placing on us all, there is the backdrop of Brexit with June a key month as the last time by which any extension to the December 31st 2020 transitional phase can be considered.
The 1st of June sees trade talks beginning again which will immediately set the tone for a month where we also have an EU Summit on the 18th / 19th and also many economic events to track for sterling rates too.
June has a Bank of England, European Central Bank and US Federal Reserve Interest Rate decisions, all of which could provide further volatility for the pound, euro and US dollar. With Coronavirus now having peaked in the number of new daily deaths recorded per day globally, and many countries plotting and navigating a path out of lockdown restrictions, the potential for optimism is creeping back on financial markets and certain currencies.
However, there remains the challenge of getting the global economy back into action. The IMF (International Monetary Fund) has a 3% fall in global GDP predicted for 2020. There remains a difficult challenge in overcoming too
Will the Pound Rise or Fall in June?
June could see Brexit no-deal uncertainty weighing on the pound easily again, as investors become nervous that with little sign of a deal being struck a no-deal Brexit is appearing a strong likelihood. We know sterling has not performed well when no-deal is looking like the ultimate outcome and so June becomes an important month for us to discover what lies ahead.
On the topic of the economy it seems with the UK still in under lockdown the economic data will continue to reflect a very low output and there is lots of reasons for concern ahead. Rishi Sunak, the Chancellor has warned of a significant recession ahead, which will surely only put more pressure on the Bank of England to consider more monetary easing and even the much feared negative interest rates than the Bank of England have been openly discussing.
June is therefore a tough month for sterling since there may be an increased focus on the issues which have seen the pound struggling in May. Of course, weakness is not guaranteed and there is potential for the pound to rise. But looking at the topics, events and issues that the pound and the UK has to work its way through in June, there is definitely the possibility of the pound finding the going tough.
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