Pound Sterling Forecast: will COVID-19 Keep GBP Weak?

GBPEUR: Sterling Exchange Rates Sell-off Due to Brexit Concerns

The pound has finished another week testing lower points and on the back foot, as a continued range of uncertainties weigh on sentiment toward the pound sterling forecast. First and foremost, the lack of clarity surrounding Brexit and an underlying viewpoint that no-deal is a real possibility.

And further, a continued deterioration in the global economic outlook as new cases and deaths at the hands of the Coronavirus sees spikes in the numbers, causing global confidence to falter. Sterling has been repeatedly labelled a ‘risky’ currency and in such an uncertain global environment, the risky currencies will generally lose value.

The pound is also suffering because of worse economic data and news which has triggered a decline in the British economic outlook in recent weeks and months. At their latest meeting, the Bank of England reported that negative interest rates and also increased Quantitative Easing (QE) were still very much possibilities, the recent signs that the global economy will not perhaps be delivering the quick rebound some had predicted, makes worse times ahead for the UK more likely.

Rishi Sunak, the UK Chancellor added to the grim mood Friday by stating UK companies would not be easily bailed out, with the government setting ‘an extraordinarily high bar’ for bailing any companies out.

The currency markets have been very volatile at the hands of the Coronavirus, with sterling experiencing some big swings on sentiment as the market becomes more and less optimistic on the news as stores develop.

Against the Euro, another currency which has seen turbulence at the hands of COVID-19, the pound has seen some extreme highs and lows, testing a 12-year low at 1.0533 on the interbank rate on the 19th March, as well as a three-year high at 1.2072 on the 20th February.

To be testing these levels and seeing 15 cents movement in the space of a month is out of the ordinary and just shows how unpredictable and volatile the currency markets can be. Sterling has to a degree regained some composure as the complete unknowns of the pandemic are gently established, but the potential for larger moves certainly exists as markets digest the next steps.

Will the Pound Rise or Fall Next Week?

Global events will inevitably continue to play an important role as the currency markets continue to react to the ongoing changes in the outlook. There is a clear picture emerging of an improvement in the Coronavirus outlook in say perhaps the UK and Europe, who are gently emerging form their lockdowns, compared to say the deteriorating outlooks in the United States and South America.

Whilst the mood can quickly change, the possibility of worsening outlooks in tackling the virus might well see more turbulence on the currency market as investors struggle to react to the news and readjust their positioning.

On the economic calendar we have the latest UK GDP data which might well prove a market mover for sterling, although it is just the next revision of the latest data from Q1, still it might well have some market moving potential. April was shown to be a-20.4% contraction, and whilst the Q1 data is to an extent old news, it might help or add to the currency sentiments for the pound.

We also have Eurozone Inflation data due which might prove useful in helping the ECB (European Central Bank) to determine if their current expansive economic policy will need adjusting when they next meet in July.

Tuesday is the last day of June and the end of Q2 which means we could see some volatility in the currency market as month end flows play a role, as investors and businesses close off positions and make investments.

From Wednesday therefore, it is the beginning of a new month, July was mooted by Boris Johnson as a time when he and the EU could strike a deal. This comment was only two weeks ago and whilst ringing slightly hollow now, shows that there is perhaps some underlying desire from both side to strike a deal.

Any signs or signals that the UK and the EU are behaving in am more constructive manner towards each other, could help to bring the pound out of the more negative state it keeps finding itself in.

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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