Last week looked set to be tough week for the pound sterling forecast last week for some time, and so it came to pass with the pound touching a fresh near three month low on GBPEUR, a three week low on GBPUSD, and a nine month low on GBPAUD, all on their interbank rates.
The announcement of further Quantitative Easing (QE) and consideration of possible interest rates cuts into negative territory by the Bank of England, all helped to fuel a decline in the attractiveness of pound sterling.
Whether the pound now further or not is a very valid question, particularly since much of the commentary around the Bank of England decision focused on potential further considerations of either negative interest rates or more QE, QE being the purchasing of assets by a Central Bank to increase economic activity, which can often cause a currency to weaken.
It was not all doom and gloom last week, with a visit by French President Macron to the UK helping trigger a rise in optimism that possibly a deal could be agreed on before the UK leaves the EU at the end of December.
Whilst the end of this month is the deadline to extend the transitional phase which ends in December, there appears no appetite on the British side to do this. The market now appears to be accepting that that extension will not happen since the British do not want it. However, the slightly more positive commentary coming from Boris and Macron does offer some glimmers of hope in the future.
What News Should we be Looking at Next Week for the Pound?
Whilst the end of last week was a bad time for sterling, the beginning of a new week could signal a fresh pair of eyes and speculators may take their profits triggering a small recovery. Of course, continued fallout and mounting speculation of a no-deal Brexit might see the pound losing value once again.
Next week doesn’t contain too much new market news regarding the pound although the latest information regarding the Purchasing Managers Index data for the UK will be of interest in providing a snapshot of activity. April’s record 20.4% Gross Domestic Product (GDP) fall announced this month is a cause of concern moving but signs that perhaps the worst is over and any falls in economic activity are being tempered, may help lift the mood.
July has been mooted as an important time on Brexit with Boris Johnson providing some possible optimism in commentary last week as mentioned above, any further signs of this could also provide some direction on sterling levels.
Overall, reasons for optimism seem limited which is why the pound lost value last week. We know how sensitive the pound has been to global news and the overall global outlook in tackling the Coronavirus. Signs that global confidence has been falling has all contributed to a weaker pound, with the UK economy very exposed in a global environment.
The UK is a net importer and relies on buying more from overseas than it sells, this trade deficit means the strength of sterling and the British economy can often rely on a healthy global demand for its products and services to boost and encourage growth.
Britain’s key exports are in financial and other services, with the UK relying on a healthy global demand for many of these operations, which are often linked to a healthy global economy. As global confidence picks up, we might well see the pound gently finding favour, as there becomes greater in interest in many of these operations that the UK will be offering.
Looking further ahead is always difficult but the general assessment at present is that the pound is suffering from the lack of clarity about whether or not the health of the British economy might warrant further stimulus ahead, and what kind of Brexit will ultimately be on offer.
Further clarity on these two key topics will provide investors with some greater reasons for confidence in moves in the relevant direction, for now the lack of clarity has caused the pound to be weaker.
If you are considering a sterling trade both buying or selling and wish to discuss the latest movements and what might be happening next, please do get in touch to discuss further with our expert team, who can share the latest news and themes in the market which may trigger the next movements.
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