Last week saw the pound sterling forecast rebound from the most recent lows, with a dip and rise against the Euro down to 1.09 on the interbank rate, and rising back to 1.11 interbank rates. On GBPUSD rates, we have seen a decline down to the 1.2256 mark, but then a rebound back over the 1.25 level too.
This rise and fall can be linked to the mixed signals the market is getting on a range of issues to influence the pound. Uncertainty over what type of Brexit deal remains a strong contender as one of the key points to drive the pound ahead, and which has been causing volatility lately.
With UK Prime Minister Boris Johnson saying earlier last week he was seeking an Australian style trade deal with the EU, the pound lost ground. This is because Australian has a bare bones relationship with the EU built on WTO (World Trade Organisation) rules. It is effectively a no-deal Brexit, and this news caused the pound.
Fast forward to later in the week, and Angela Merkel was quoted as saying she had agreed with the EU to really focus with the UK on achieving a trade deal by the Autumn. The outlook is still very much mixed on Brexit, other reports that the trade talks were falling through have also weighed on sentiment.
All in all, this week could be looked at as a turning point, when perhaps the uncertainty for the pound began to gently lift. Another reason for the turnaround was that it was announced that Chief economist Andy Haldane, was predicting a V-shaped recovery for the UK. This news was well received by the FX markets who had been gently expecting more QE (Quantitative Easing) and possibly negative interest rates too.
Will the Pound Rise or Fall Next Week?
Looking to the week coming up, we don’t have a huge amount of new UK data, but other influences could act as a driver sterling exchange rates. The pound has also been labelled a ‘risky’ currency in the press, and this is because of its tendency to fall in times of low global confidence, whilst rise when confidence comes back.
This is the typical behavior of risk currencies like the Australian dollar, and also the South African Rand and also the New Zealand dollar. Market sentiments on the progress or not being made in tackling the coronavirus have all helped to shape behaviour on these currencies, as investors become more or less confident about the outlook.
Early on Tuesday morning it is the latest RBA (Reserve Bank of Australia) interest rate decision, which can often be a market mover for Australian dollar exchange rates. The RBA has cut interest rates to record lows to combat the crisis as a result of COVID-19, and the currency markets will be keen to see what lies ahead.
With increasing uncertainty over their relationship with China, as reflected by China increasing its military spend, and China appearing to engage in conflict with partners including Australian but also Hong Kong and India, any concerns over the detrimental impact in the future to the already fragile Australian economy could see the Aussie currency weaker, inline with past behaviours.
Economic Data to Look Out For Next Week
In the Eurozone, we have the latest Retail Sales data which can be a market mover. Generally speaking, Europe appears to be emerging from the Coronavirus lockdowns in better shape than say the UK or the US, with borders being opened for international travel, and tourism, a key source of income for many countries being allowed to operate and generate revenue again.
Whether or not the dreaded second wave will emerge is a key concern, but for now, the Euro has been stronger on the market’s confidence that the worst fears are not being realised.
Next week has plenty of economic data which might the currency markets, but with sterling not so much in the headlines for economic news, it might well be other concerns relating to Brexit which shape the sentiment for the pound.
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