Pound sterling has started the week in strong fashion after beginning the week in positive territory against all major currency pairs. The pound to euro exchange rate has seen some moderate, with sterling making some gains against the euro on Friday’s trading session. Sterling has also climbed against the US dollar on a daily basis now for the past 6-trading days and today’s opening levels are the highest for cable (GBPUSD) since mid-March which suggests that the markets are now more bullish regarding the pound’s prospects.
It may be a surprise to some that the pound is performing well at the moment, as last week trade negotiations between UK and EU leaders took place with no progress being made according to the EU’s Chief Negotiator, Michel Barnier. Although he did comment that it seems that both sides will be open to making concessions which may have helped improve sentiment and helped support the pound to euro rate.
Leading up to June, financial markets seemed weary of the pound and we saw it gradually lose value throughout May, as markets prepared for what is expected to be a key month for the UK economy moving forward. June is the final month in which the UK government can request an extension to the UK’s official departure date from the EU, which at the moment is the 31st of January next year. It appears that those concerns are now waning though as a number of key figures within the UK have stated that there will be no extension, with UK Prime Minister Boris Johnson reinforcing this standpoint.
Markets will continue to follow the negotiations though, and much of the pound’s market movement may be influenced by Brexit talks as lockdown measures are lifted. The talks could heat up so it’s worth being aware of this if you’re planning on making a currency exchange involving the pound soon.
Perhaps another reason for the pound’s strong start to the week is an increase in risk sentiment, and an improvement in the global outlook after some surprising economic data was released out of the US late on Friday. The US surprisingly added 2.5 million jobs in May, and the unemployment rate declined to 13.3% with both figures coming as a shock after a terrible jobs report the previous month owing to the Covid-19 lockdown measures. There was an expectation for a drop of 7.5 million jobs so the markets reacted instantly with global equity markets gaining once the figures were released.
Those of our readers following the pound will be aware that in March sterling was under intense pressure and hit a 30+ year low against the US dollar due to global concerns of an economic crash because of the Covid-19 virus. As the UK has a high current deficit the currency appears to struggle in times of a global slowdown, so now that the global economy is showing signs of picking up it’s not surprising to see the pound gain.
Could Another Wave of Covid-19 Cases Hurt the Pound?
A number of lockdown measures have been recently lifted as parts of the UK are showing signs of a fall in both the number of Covid-19 cases and fatalities recorded. Despite this there are now concerns of a second wave of cases as the protests regarding the unlawful killing of George Floyd in the US have spread to the UK as well as other western nations. Protests have taken place in London over the past 2-weekends as well as cities such as Bristol, and there appeared to be little signs of social distancing according to the images online and reported in the news. Due to the aforementioned reasons if there is another spike in the number of cases within the UK we could see the pound come under pressure once again. We will find out over the next few weeks if there have been an increase in the reported number of cases.
UK GDP Figures This Friday Could Cause Volatility for the Pound
Economic data out of the UK is light this week, and investors will need to wait until Friday until the weeks key data is released. Both Industrial Production, and perhaps more importantly UK GDP figures for April will be released. As April was during the UK’s lockdown the economic update may be followed closely as investors will be keen to see how the UK performed during this time. The expectation is for a fall -18.7% so I would expect any deviations from this figure to result in market movement. Do feel free to register your interest with me if you wish to be updated regarding the outcome.