Pound Sterling Forecast – Where Next for Sterling?

Pound to Euro – High Volatility Expected in Weeks Ahead

The pound has begun this week in mixed fashion, trading neither particularly higher or lower on the speech delivered by Boris Johnson over the weekend speech which spelled out the path ahead in easing the lockdown restrictions. The currency market has proceeded rather cautiously as so far as we have very little change in the current circumstances and there is still the possibility of a second wave of infections.

And it was possibility of a second wave of infections which saw sterling losing ground at times yesterday, as investors’ fears over the overall outlook against the Coronavirus became an issue once again. Germany, China and South Korea have all reported fresh cases.

The pound has previously found optimism on progress in tackling the Coronavirus by both the UK and the world, since the UK will need a strong and healthy global environment to do well in the future, because its economy relies on a strong healthy global economy providing demand for British assets, goods and services.

The news from Johnson is ‘progress but with little significant change’, has not had a material impact on sterling so far. Monday was however a day where in fact the currency markets began to become fearful again that the progress seen was not as positive as perhaps previously felt.

With sterling rising higher and lower in part according to sentiment on the global response to the Coronavirus, the path ahead is very difficult to predict. The sentiment of the currency market can ebb and flow in different directions each day over the Coronavirus, only last week sterling was benefitting from improved sentiments over progress in tackling the virus, only for that to be undone in part yesterday.

Will sterling fall on the UK GDP data?

Key economic data for the rest of the week is the latest UK Gross Domestic Product (GDP) data tomorrow highlighting growth in the British economy for Q1. The reading is predicted to come in at -1.6%, a worrying decline which might well have an influence on sterling exchange rates.

It can be argued that this data might already been ‘priced’ into current GBP levels, however the news is key in determining the performance of the UK economy so far in 2020 and appears bound to attract market attention.

Interestingly, the data is for January to March and the UK’s lockdown only began on the 23rd March. However, we know that the UK was already experiencing lower economic activity in February and even January, as a result of the virus which was spreading through the global economy.

It might be argued that Q2 of this year, for April to June, will be more interesting since it covers the total period of the UK in lockdown. Anecdotal evidence with business surveys is pointing to some worrying news, and the Bank of England has warned of a possible shrinking of 25% in this quarter.

We won’t get that news until August unfortunately so the market will be forced to rely on the other data releases to form a picture of the UK economy and how it is bearing up.

The key point here is that historically, sterling doesn’t perform well when poor UK economic is released. Any signs of worsening or prolonged poor data might well therefore be a key factor for any clients considering a currency exchange up ahead.

Pound Sterling Forecast: GBPEUR exchange rates

The pound to euro exchange rate is sitting at 1.14059 on the interbank rate. It has been as high recently as 1.1529 on the 30th April, we are closer to the highs than the lows of the last three months. The three month low is 1.0533 on the 19th March, whilst the three month high was the 18th February when we hit 1.2045.

The euro is weaker owing to concerns about the debt obligations of Spain, Italy and others, and how they will be able to handle and engineer the economic recovery needed ahead. There are calls for Eurozone debt to be consolidated, something that is being resisted by Germany and others.

This topic has seen the euro weaker a times and might continue to be a factor to weaken the euro although clearly sterling is not immune from its own challenges. Quite interestingly poor news for the Eurozone hasn’t seen GBPEUR rising at times, in part because a badly performing Eurozone economy is actually bad for the UK, since the UK relies heavily on trade with its European friends.

GBPUSD Forecast

The pound to US dollar exchange rate is currently 1.2328 on the interbank rate, and has been as high as 1.3096 on the 9th March. The more recent high was 1.2628 on the 15th April, with the three month low was 1.1435 on the 19th March. GBPUSD levels have been shaped by continued global uncertainty over the Coronavirus, importantly driven by the US dollar’s status as a safe haven currency.

The US dollar is rising and falling according to global optimism or pessimism over the fight against the COVID-19 pandemic. The US has been one of the worst affected countries globally but the gentle easing of restrictions in New York and some other states could see it begin a recovery.

The US Federal Reserve have ruled out negative interest rates for now, a key area of focus is on Donald Trump’s political moves, particularly in an election year.

The pound is being driven by both domestic issues in the UK but also global sentiment on risk and it is also important to understand the latest news and events affecting your respective currency pairing too, to fully appreciate and understand the market movements.

If you are considering a transfer ahead, and wish to discuss the latest market news and events to move your rate, we are able to speak further with you and outline the various scenarios and potential movements ahead. Get in touch using the form below, I’ll be happy to respond personally and discuss your requirement.