Pound Sterling Forecast – Could Sterling Fall Lower Still?

GBP EUR Looks to Employment Figures for Support

The pound ended this week struggling with mounting concerns over the UK’s economic performance. The pound this week suffered its biggest weekly loss against the Euro since May, with the interbank rate touching lows of 1.0947.

Against the US dollar and other currencies it was a similar picture with the pound losing ground against many currencies following a week of poor data and continued concerns over the economic impact of the Coronavirus, the policy response by the Bank of England and the potential for this to continue to drag on.

GBPUSD interbank rates yesterday hit 1.2511, whilst GBPAUD interbank rates were back below 1.80 in the 1.79’s, with 1 Australian dollar nudging 0.56 at 0.5576.

Some of the highlights, or perhaps that should be lowlights, of the week included UK Gross Domestic Product (GDP in May being recorded at 1.8% versus the 5.5% predicted by some economists. Considering the data for April was -20%, some positive growth was most welcome but with sterling having been rising lately on renewed optimism that the UK recovery would form a V-shape and a quick recovery, the lower figure caused sterling weakness.

We also learned of news that over half a million jobs had been lost since March, as a result of the lockdowns and economic slowdown. The outlook on Unemployment is crucial to the UK’s economic recovery, as people out of work can place an extra burden on the welfare state and will inevitably be spending less and less economically active.

All in all, the pound has proved its sensitivity to uncertainty once again this week, and how any bad news can have a big influence on the rates, particularly where some recent good news or optimism had caused it to rise. The added caution that seems to have been applied to sterling in recent years seems likely to remain, and the potential for lower rates continues to exist.

What News Can we Monitor Next Week for the Pound Sterling Forecast?

Next week, trade talks with the EU will resume and this will more than likely form part of the conversation around the pound, as investors seek to better understand what lies ahead for the UK and its future trading relationship with the EU.

The Brexit deadline is continuing to approach with December 31st forming the final date for the transitional phase, where the UK will then have to embark on a new relationship with the EU, with the options currently set at either a ‘no-deal’ or some form of new trading arrangement.

At present, the UK and EU have loosely agreed October is a deadline to agree some terms, since for a concrete new arrangement to be in place for January 1st, it will take time to ratify the deal amongst the exiting EU members for final approval.

Signs of a deal being reached have seen the pound rise, whilst suggestions of no-deal have seen the pound lower. Looking further ahead, the market will need to better understand this topic and next week’s talks could trigger headlines that could influence short term volatility for the pound/

Is the Worst of Coronavirus Now Over?

With Boris Johnson’s rhetoric now suggesting he backs a gentle return to work where possible, it could be we have reached a turning point where life can begin to get back to some loose normality with employees gently returning to offices, and spending more in the many shops and businesses, typically in the hospitality sector that rely on that trade.

The gradual easing od restrictions is to a degree welcome, but the potential for a second wave remains a key threat that could easily see lockdowns reintroduced as with Leicester, which could see the pound in a more difficult place.

With the data of this week indicating the economy is still in a difficult place, it might be argued there is more pressure on Boris and the government to get the country back to work, to avoid the damage economic malaise has, which it might be argued can be comparable to the health effects of COVID-19. Whilst the UK will surely proceed with caution, a balance has to be found that allow the country to get back working and spending, without triggering a worse flood of new cases.

The pound will continue to face hurdles ahead as the markets digests the latest news, please get in touch if you would like to discuss your situation in more detail.

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