The pound has truly had a mixed week rising and falling throughout the week against various currencies, as optimism rises and falls on the many different factors influencing exchange rates. Friday afternoon has seen fresh highs against the US dollar reached with the interbank rate reaching 1.2731, whilst GBPEUR levels reached 1.1252, not quite the 1.1272 highs reached Tuesday, but still much higher than the lows of 1.1085 reached on the 29th March and which were tested as last week began.
Why has the pound risen? This is largely down to risk sentiment which has been a big factor in the currency markets driving all currencies higher and lower as markets become more and less confident about the global economy.
Principally, it has been risk sentiment relating to progress with tackling the Coronavirus which has been a key driver for the pound this week. Plus, ongoing developments with Brexit, the UK economy and interest rates. It appears the Coronavirus has amplified some of the usual behaviours and trends, although of course like most things in the currency market this can be debated.
Why has risk sentiment improved?
It has been said that when the US catches a cold, the world sneezes. And so it might be argued that when the US recovers from the cold, so too does the world. This is because the effects of the US economy on the global economy are significant, in that the prosperity of America influences the rest of the world.
News on Friday afternoon that American job losses were falling with Unemployment figures coming in at 13.3% versus the equivalent data for April at 14.7%. Forecasters were penciling in a number of closer to 20%, so the relief and surprise has been triggering a weaker US dollar, as for investors risk is gently ‘off’ and they can begin to invest in other more profitable areas.
GBPUSD saw a big move from the 1.23 interbank levels last week to the 1.2731 seen on Friday, which has dragged the pound higher against other currencies. This a reversal of some of the trend on the 19th March 2020, when GBPUSD dropped to 1.1435, owing to a stronger US dollar. At that time, it also dragged the pound down to record lows against other currencies.
Will the Pound Find Further Improvements Ahead?
We can see therefore the importance of global events in shaping attitudes and performance on various currencies, and how news in the United States can affect sterling. Clients looking to buy or sell Euros or Australian dollars with pounds should also take note of what is happening in America.
For the UK, other topics to be highly considered are the ongoing Brexit talks, which yielded no progress as reported on Friday by Michal Barnier of the EU. Talks on Brexit have been central to the rise and fall of sterling and June is a key month as it is the deadline for development with any extension to the December 31st transitional phase.
If the UK cannot agree an extension this month, or agree a trade deal with the EU by the end of the year, the UK and EU will be facing the no-deal which has so badly influenced the pound in recent years, often triggering weakness and the sale of UK assets.
The 18th and 19th is an EU Summit, this is also the date of the latest UK Interest Rate decision which could prove decisive for the pound in shaping the direction ahead.
Next week is the all important latest UK GDP data which might well influence sterling rates, but it might be that the market may begin to gear up for the following week too. The pound could also find continued political developments in the UK shaping trends, as well as more global attitudes on risk too. All in all June has proved a volatile and tricky month to predict so far, and with so much still happening and to happen, the volatility may well be set to continue.
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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