The pound weakened in May as the continued uncertainty over the economic effects of the Coronavirus weighed on the UK both politically and economically. The outlook for the UK has been tainted by the Coronavirus with the UK slightly behind the curve of many other countries who are gently opening borders and allowing freer movement of people and business.
The UK Government has spent billions on a furlough scheme which whilst providing some temporary relief is also perhaps just papering over some significant cracks in the economy and postponing economic hardship for down the road when the scheme ends in October.
The pound faces increased challenges in June with increased intensity of Brexit negotiations as the latest talks get underway. The UK and the EU appear quite far apart from each other in terms of any progress to be made from talks.
The end of June is the deadline for any extension to be agreed to the December 31st end of the transitional phase. The impression is that the UK Government is not concerned by this looming deadline and is not making any effort to seek an extension.
This has been made clear on numerous occasions by Boris Johnson, and given the latest political uncertainty because of the Dominic Cummings affair, it might be argued that now more than ever Boris needs to stick to his guns and not been seen as weak.
We know the uncertainty of a no-deal Brexit can influence the pound and trigger sterling weakness based on previous market developments. The currency markets will surely be monitoring the latest talks to see how they progress and whether or not the UK is looking like it will be headed for a deal, no-deal or some kind of extension.
June also has the latest Bank of England interest rate decision where there might be added focus on the possibility of negative interest rates. Should this topic continue to be mentioned there is a real chance that the pound could weaken, although any signs it is not being considered could see a relief rally and the pound then rising.
What Other Events Could Affect the Pound Sterling Forecast?
Looking to other currencies pairings with the pound the potential for volatility exists with both the European Central Bank and also the US Federal Reserve both having interest rate decisions this month. Both central banks are likely to be constantly monitoring their own economic situations and also that of the global economy, with a view to potentially changing policy as necessary.
The US dollar has been stronger overall because of the Coronavirus and its status as a safe haven currency. This means in times of economic uncertainty it can rise in value as investors seek to buy the dollar as a shield away from uncertainty elsewhere.
Looking forward, the continued uncertainty over the Coronavirus could be a challenge for markets. Should there suddenly be a big resurgence in cases worldwide that puts yet more strain on the global economy, the US dollar may be affected.
Looking at the Euro, the single currency has been rising because of the announcement of a €750 bn program to shore up confidence in the region. This has helped to see the Euro stronger and could act as a limiter to Euro weakness, since one of the big criticisms of the Eurozone has been its inability to provide a significant safety net to the countries worse affected like Italy.
The continued effects of the Coronavirus may continue to be a factor influencing the currency markets as a whole with risk sentiment being a crucial factor be aware of. Essentially when there is a ‘risk on’ situation, there is increased concern regarding risk and this can cause the safe havens like the US dollar to rise whilst other currencies may weaken.
And when it is a ‘risk off’ situation, the safe havens can weaken and other currencies might recover. Towards the end of May the risk situation had eased gently as markets became more confident following the easing of lockdown restrictions and also hopes of a vaccine.
June will see all sorts of fresh news and events to move the pound against other currencies. So, if you have a transfer to consider then we would be most interested to hear from you and discuss the latest news and events to move your rate. 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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