Pound Sterling Forecast – Will the Pound Weaken Ahead?

Pound Sterling Forecast – Will the Recent GBP Recovery Last?

The pound sterling forecast is weaker against the euro, dropping to a two-month low yesterday of 1.1115 on the interbank exchange rate, as investors took fright at recent political developments in the UK. I did warn in my blog last week of the potential for sterling to experience further weakness ahead and so it has continued to prove the case.

Whatever your thoughts on one particular topic, the Dominic Cummings affair has weighed on politics in the UK with now 45 Conservative MP’s reported by the Times seeking his resignation. The news has slashed the Conservative lead in polls, with a 15 point lead against Labour reduced to 6 points, with Conservatives on 44% of the vote, whilst Labour have risen to 38%.

Of course, there is no election due anytime soon, but the mood does put pressure on the government and sterling. The continued fallout from the case does have the potential to influence the strength of the UK government and we know from history such events can in turn affect exchange rates.

Another reason for the euro rising was the announcement of a €750 ‘Next Generation EU’ stimulus package to fight Coronavirus and help economies throughout the European Union. With markets having become very concerned in recent weeks about the debt obligation of Italy and Spain, and their ability to fight the economic challenges of getting back on track after COVID-19, this package helped the euro to rise against the pound.

The euro has now risen over 3.5% against the pound since the beginning of May on the GBPEUR interbank rate, with a Euro sale of €100,000 now buying over £3155 more today than it would have at the beginning of May.

In economic news today, there is limited sterling data but there are a series of European Inflation releases this morning which could influence GBPEUR levels.

This afternoon, we have some important US economic data released with the latest US Gross Domestic Product data figures. Last month’s preliminary estimate of Q1 for the US showed a -4.8% fall and this revision could provide some further clues on how the American economy is responding to the pandemic, with real potential to influence US dollar exchange rates.

We also have Jobless Claims data from the US, a key metric being used by investors to monitor the state of the US labour market. Investors are gearing themselves for another 2.1m Americans to be added to the list of benefit claims, this would push the 10-week total to 41 million Americans since lockdown began, a worrying set of numbers that paints a less than rosy picture ahead for policy makers and potentially the US dollar.

Why Pound to US Dollar May Keep Rising but GBPEUR Rates May Fall

The markets have US dollar actually been quite kind to the US dollar despite such worrying numbers, this is in part because the US dollar is not just judged on the US economy, but also on its status as a safe haven. The US dollar is in fact currently much stronger against many currencies since the beginning of the year because of how much it appreciated as the full potential of the pandemic struck the world in February and March. This was embodied by the fact GBPUSD dropped to a record low of 1.1433 on the 19th March, this was in response to the US dollar rising sharply under its safe haven status, as investors ran for cover from greater uncertainty elsewhere.

And this feature of US dollar behaviour, its safe haven status is not just present when it can rise in value, but also when it drops in value. Whilst GBPEUR levels have dropped as mentioned above, GBPUSD has actually risen in the last week. This is because the US dollar has actually been getting weaker as the safe haven positions which had made it stronger, have begun to unwind as there is increasing optimism over the global economic outlook and battle against COVID-19. Positive signs like the continued easing of lockdown restrictions and news over successful vaccine trials have all helped to contribute to a weaker US dollar as gentle progress is made and there are signs that the worst of the Coronavirus might now be over.

This movement on the US dollar could therefore see the dollar weaken against the pound if it continues, whilst the movement on EURUSD it causes, triggers a stronger Euro on EURUSD. This stronger euro can then weigh on the GBPEUR rate, hence GBPEUR falling whilst GBPUSD rising.

It is no coincidence that the recent news that GBPEUR is currently reaching a two month low also coincides with EURUSD also reaching a 8-week high, movement on EURUSD as a result of the US dollar can also influence GBPEUR levels, the same is true of GBPUSD too.

If you have a transfer to consider, feel free to get in touch to discuss the latest news and events to move your rate. The Coronavirus has made the currency markets even more unpredictable and volatile in many respects, and we can help share with you the latest news and provide tools to help provide you make an informed decision and strategy on your transfer.