With GBPEUR exchange rates having dropped from an interbank exchange rate of 1.15 towards the end of April down to a rate in the 1.11s at the time of writing this article, many of my clients are asking me about the Pound Sterling Forecast, and whether or not the pound could weaken further still?
Add into the situation a 4 cent drop for GBPUSD (1.26 to 1.22) and a 9-cent decline for GBPAUD (1.95 to 1.86) and sterling exchange rates really have had a rough month.
The pattern is much the same against most major currencies, but why does it appear that the pound is having a bigger headache than many other major currencies.
There are a few potential candidates for the continuous decline, first and foremost we have had a high number of cases and deaths from COVID-19 in comparison to many other countries. With such a dense population and with restrictions not being as heavy handed in the virus’s infancy the virus has led to the unfortunate loss of life for over 30,000 people in the U.K so far.
On top of this, the U.K was a little behind in the virus taking hold therefore we are a few weeks behind in our lockdown exit strategy, many investors have said that those that get out of the gates and get their economy moving again quickly will reap the benefits in this terrible situation we find ourselves in, and so far we have merely tip toed out of the gates, and the 14 day quarantine ruling announced at the end of last week may also dampen investors spirits about the U.K’s economic performance in the months to come.
The U.K has also spent vigorously during the pandemic, and that money will no doubt have to be recouped from somewhere, with the current furlough scheme costing billions of pounds per month there may be further concerns on who will foot the bill in the years to come too.
This is a big issue for the value of the pound and has been for some time now, it is also an issue that most other areas around the world do not have hanging over their heads.
Brexit talks still appear to be going around in circles and seem to be sat in a stalemate situation. Chief EU negotiator Michel Barnier still continues to comment that little progress is being made, and there is now only one more round of negotiating to go in June before Boris Johnson and Parliament have the option to extend the deadline of 31st December or to crack on and risk a no deal scenario.
Those that have been following the markets for the past few years will be aware that even the mere mention of a no deal Brexit has given sterling exchange rates a wobble, so if a deadline extension is not requested and significant progress is not claimed in the next round of discussions then we could see the pound slide towards the end of June.
Negative Interest Rates
June 18th will be a key date for anyone following sterling exchange rates for an upcoming currency exchange, as we not only have a meeting with the EU but also the Bank of England interest rate decision.
This day will gather momentum as we head closer to it and comments from any BoE members in the lead up to it hinting at any fiscal changes could have an impact on the value of the pound.
We have already heard of the potential of negative interest rates for the U.K and should this possibility become a reality then there could be further misery for the pound.
An interest rate cut is often seen as negative for a currency as it makes it less attractive to investors, by cutting to negative rates is discourages people to hold funds in savings in bank accounts so you may see a huge flow of money back overseas to gain a better return on investment, this could see a decrease in demand for the pound and therefore hit its value.
The negative interest rates are there to encourage banks to lend and consumers to spend, but even the mere speculation of this happening could give the pound a headache in the short term, although it would hopefully help get the U.K economy moving again in the longer term.
If you are in the process of buying or selling a property abroad or you have large business transactions to carry out, then this certainly is quite a volatile time to say the least. Despite my reasons above you just never quite know what may happen next with exchange rates and they have been known many times to swim against the tide, when everyone thinks that a currency may go one way it can do quite the opposite.
What this does mean is that you need a proactive and knowledgeable currency exchange specialist on your side to help you with the facts and movements to assist you with the timing of your transfer.
Get in touch using the form below to discuss these factors and how they might impact your currency exchange. I’ll be happy go contact you personally and discuss your enquiry.