The month of May saw the Euro to pound appreciate by 4%, and after yesterday’s movements the pound is still close to the bottom of this range. When we look at Germany, the Eurozone’s biggest economy, they are quite far ahead of the UK in their dealings with Coronavirus. An article in the Financial Times last week stated the UK is lagging behind Europe in its recovery, this might further explain recent Euro to pound strength.
The high to low range since February 18th has been 1.2081 at the top end, down to 1.0511, a move of over 15 cents. This increased volatility has largely been at the hands of the Coronavirus, and continued uncertainty over the global economic outlook could trigger further movements.
Next week will give us some further clues as to whether we will be reaching either of these higher and lower ranges anytime soon. What the these rather wide ranges certainly do highlight is the very unpredictable nature of the currency markets and the importance of keeping in touch with us.
Reuters reported last week that net short positions for the pound were at their highest since November, an indication that the market thinks the pound could have more to lose. Now of course this doesn’t guarantee anything but when you consider the events next week and the potential for negative news, it does explain why sterling is under pressure.
The moves last week must be seen in the context of recent weeks where the pound had actually been climbing against the US dollar rising to 1.2804 at their peak this week on the interbank level. This is quite a move from the 1.1435 at the lows seen back in March. The pound had risen against most other currencies too on optimism that progress was being made in tackling the virus, in line with the behaviour I outlined above based on global confidence. The exception to this would be the Euro as recent progress in providing increased stimulus and support in the Eurozone had increased demand for the euro.
Inevitably the path ahead will be fraught with ever changing sentiment towards the global economic outlook, news of any further increases in fresh new cases of Coronavirus will be key. Fright this week of a second wave of infection helped the trigger some of the sharper moves and with the world still very much fighting against the virus, the potential for the situation to escalate again definitely exists.
Any clients with a sterling transfer, hanging on holding for either a higher or lower rate should be aware of the potential for volatility next week. If you have a target rate of exchange we would be most interested to hear from you to discuss the market in greater details, and provide some options and strategy to give you the best chance to achieve your desired 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.
Will the Pound Rise or Fall Next Week? Potentially Very Important Week Ahead for the Pound!
The pound has had a topsy turvy June, rising and falling with ‘risk sentiment’ as investors general confidence with the global economic outlook rises and falls. To put it in some rather morbid terms, you can see a correlation between the number of new infections and deaths worldwide as a result of COVID-19, and the strength and weakness of the US dollar and also the pound.
The US dollar, a well known safe haven and the world’s leading currency generally rises and falls on this market optimism or pessimism, and the pound, labelled a risky currency, is generally moving in the opposite direction. This is not a hard and fast rule, and the pound’s behaviour against other currencies will also depend on other issues affecting the respective currency pairing. However, risk sentiment and confidence is an important factor on exchange rates to be aware of at present and has been readily identifiable in recent weeks.
Next week is important because we have the latest UK Bank of England Interest Rate decision and also the latest EU Summit, where Brexit talks are expected to feature heavily. The outcome from next week’s events may be vital to the pound, and also perhaps the Euro, as Brexit is also a factor for pound to euro exchange rates.
On the topic of Brexit, many analysts are quite negative about the outlook with expectations for a no-deal quite high at present. The end of June deadline to agree any extension is being dismissed by the UK government, who are keen to ensure nothing derails these plans. No-deal fears have seen the pound weaker on many occasions, any signal that this is being avoided may help to increase interest and value in the pound.
On the topic of interest rates, there is the possibility the Bank of England will be warning about negative rates, and also possible further Quantitative Easing, two issues which may directly influence the attractiveness or not of the pound. Any signs of negative rates and more QE being strongly considered or mooted may see a weaker pound. Likewise, a more confident and optimistic report from the Bank of England could see the pound rise.
Andrew Bailey, Governor of the Bank of England did signal his acknowledgement of some ‘green shoots’ in the British economy last week, although a record fall in GDP to -20.4% isn’t inspiring too much confidence from the market overall.
If you would like to discuss the markets in more detail, please do contact me using the form below. I’ll be happy to get in touch and discuss your requirements.