The pound endured a bit of a mixed week rising higher and lower against the euro, US dollar and other currencies as sentiment towards the UK continued to be mixed. On the one hand there is the overall uncertainty of the Coronavirus, with the UK clearly one of the worst affected countries with over 200,000 cases and 30,00 deaths, truly awful numbers.
However, given this backdrop, there are big steps being taken with the number of tests rapidly increasing and the UK government and central bank having taken significant action to prepare the economy for the future.
It is worth noting that whilst sterling might still be lower at present compared to some of the more historical pre-Brexit levels, the pound has made some big movements higher following the lows reached on the 19th March. At that time, GBPEUR hit 1.0533 and GBPUSD 1.1435 on the interbank rates, fresh multiyear lows for the pound against both currencies. When you consider GBPEUR is now 1.1407 and 9 cents higher, and GBPUSD is 1.2312, also 9 cents higher, we are not perhaps in too bad a shape.
What Lies Ahead for Sterling Exchange Rates?
In terms of what lies ahead, the Bank of England gave its latest assessment on the economy alongside the latest Interest Rate decision this week warning of a 14% shrinkage in the British economy this year and a 35% decline of growth for this quarter.
Historically, poor economic news does not bode well for the pound and with many commentators and business news predicting further stimulus ahead from the Bank of England, the potential for more weakness in the pound certainly exists.
Has the Pound Bottomed out Yet?
As discussed sterling has risen from the fresh lows against the Euro and US dollar outlined above on the 19th March. This day was significant in that it was almost a peak of uncertainty globally, as it became apparent the virus had spread throughout Europe and that the UK would not be escaping lightly.
What helped the pound to turn around its fortunes from that time was the announcement of significant measures by the UK government to support the economy, in particular the announcement of the furlough scheme and also a series of loans for business.
Progress on tackling the Coronavirus is being seen as positive for sterling so it will be interesting to see if when Boris Johnson gives a speech on Sunday setting out this plans for easing lockdown measures, we see some movement for the pound.
Sterling could yet have further to fall but with the world making progress in tackling the virus and numerous countries around the world on a path to resuming economic activity, there is an argument for more optimism to feed into the pound.
Important Economic Data Ahead Next Week
The optimism of progress will however likely be challenged by what is likely to be continued poor economic data that will test even the most optimistic. Next week is a key week for the UK with the latest GDP (Gross Domestic Product) data, namely that for Q1 of this year, from January to March.
Whilst the lockdown only started towards the end of March, economic activity globally was affected for the whole period and the prediction is for the economy to have declined by 2%. As mentioned above, typically the pound will lose value when economic data is bad although there could be arguments to say that this is priced into the market and poor news is already expected.
GBPEUR levels will see input from the latest Eurozone GDP data too, whilst for the United States we will have the latest Retail Sales figures. Next week we also have Chinese and US Inflation data, all with the potential to influence many different currency pairings including GBPUSD but also GBPAUD and GBPNZD.
Sterling has been weaker on uncertainty over the global outlook but the potential for progress and the global economy making steps to fight the virus and mount a recovery is good news for the UK which relies so heavily on a strong global economic outlook to perform well.
If you have a sterling transfer to consider buying or selling and wish to better understand the market outlook and some strategy to maximise your transfer, please do get in touch.