Pound Sterling Forecast – Is the Worst Over for GBP?

Pound to Euro Ends Week Higher

The pound sterling has staged a small recovery against this week against some currencies including the US dollar and also the Australian dollar but remains at some of the lower levels of recent weeks against many others.

The weakness in sterling has interestingly not been extended since many of the lows were established last week and early this week when the markets opened, with fresh interbank lows of 1.0962 on GBPEUR and 1.2337 on GBPUSD exchange rates.

Much of the uncertainty and weakness for the pound stems from the continued lack of clarity surrounding Brexit, and also the room for possible further worse news ahead in the UK economy, which might prompt the Bank of England to reconsider policy options. Last week’s decision to increase the Quantitative Easing by £100bn saw the pound ultimately lower, particularly on the prospect of worse to come ahead.

Therefore, with sterling now reaching a fresh low against the currencies as mentioned above, it does beg the question whether the worst is over. Whilst there is always the potential for worse news ahead, it might be argued that there are some signs of optimism.

Reasons for more positivity are that according to headlines of the last few weeks the UK is very keen to get a deal with the EU, with Boris Johnson saying he hoped a Brexit deal could be reached in July. There are still 6 months before the end of the year within which to find common ground and whilst this has repeatedly been labelled far too short, there is still the possibility and perhaps an underlying suggestion that agreeing a deal is in both sides interests.

Regarding the Coronavirus, the number of news cases for the UK has dropped to fresh low levels and Boris Johnson has allowed a major easing of restrictions to allow for shops, restaurants and bars to reopen.

This would all imply a bit more optimism that the UK can recover and get its important hospitality and retail industry back on track. Retail Sales in May were lifted sharply by the reopening of DIY stores and Garden centres, providing some much needed economic activity to boost growth.

What Will Drive Sterling Strength in the Coming Weeks?

The pound has been rising and falling on global optimism and confidence relating to the tackling of the Coronavirus and whilst the UK is at this point doing well, the risk of a severe second wave of infection cannot be ruled out.

We have seen globally how many countries which eased restrictions saw a rise in infections very quickly with the US a clear example. Continued uncertainty over the risk to the UK will remain, it has been reported that since the UK has a very dense population density, it does remain very sensitive to any increases in new cases.

The currency market will likely continue to track the ongoing global approach to Coronavirus, to determine the relative value of sterling against other currencies.

Important news today that might influence the pound is limited from the UK side although we do have a speech by Andy Haldane, chief economist at the Bank of England today, this could be something to watch out for should he provide any indications on monetary policy for the UK moving forward.

Other important news to be aware of that might influence all exchange rates might be the latest US GDP (Gross Domestic Product) data due this afternoon. The US economy shrank 5% in the first quarter of this year, the outlook and behaviour of the US dollar can be a big factor that might influence the pound, as described above.

Any signs that the US economy is performing badly can have a knock-on effect for the US dollar which in rising and falling can drag the pound down against other currencies. Sterling remains testing some of the lower points of recent weeks as mentioned above, the absence of any new fresh sterling related news may present less reasons for greater movements today purely from the sterling side.

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.

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