Pound Sterling Forecast – Mixed Fortunes for Sterling Exchange Rates Reflecting Uncertainty Ahead

pound to euro: Will the U.K head into another lockdown?

The pound has been particularly volatile this week, rising and falling as sentiment on the key topics at present, Brexit and the Coronavirus outlook, continue to shape not just attitudes to the pound, but also other currencies like the Euro and the US dollar.

GBPEUR interbank rates have epitomized this volatility, rising and falling between 1.0946 and 1.1109 on the interbank exchange rate. Meanwhile. GBPUSD has also experienced volatility rising and falling between 1.2516 and 1.2766 in the last week.

For clients interested in GBPAUD it has been a good week for selling Australian dollars for pounds, with the GBPAUD interbank rate falling to 1.7702 yesterday, almost a one-year low.
The pound has experienced volatility for various reasons, including a Daily Telegraph report suggesting Boris would abandon any hopes of a deal with the EU, which caused sterling weakness. Sterling strength has been delivered earlier this week from optimism over a vaccine for COVID-19 which helped the pound to find some support.

Lack of Clarity on Brexit Sees the Pound Struggling for Direction

The mixed picture on Brexit is definitely a factor we can argue that is influencing the pound once again, as the December 31st deadline approaches for the end of the UK’s transitional phase with the EU.

The report in the Daily Telegraph suggests that Boris and the government are quite happy with trading on WTO (World Trade Organisation) Terms at the beginning of 2021. However, the report also noted there was still appetite for a deal on British terms, and other reports recently had suggested David Frost, chief Brexit negotiator for the UK, was hoping to ‘overcome significant difference’ with the EU to find a landing zone of a deal.

All in all, a confused picture once again for Brexit, but sterling has reacted to these bits of news, rising on hopes or optimism of a deal, whilst falling when no-deal becomes more likely. For so long as this lack of clarity persists, it seems reasonable to expect a mixed and uncertain outlook for the pound from Brexit.

Investors ultimately want some clarity to make a big decision on the pound, the lack of knowledge over exactly how events will pan out makes this difficult for now.

Other reasons for the movements on sterling exchange rates emanate from developments in the global economy with this week witnessing some key developments for the Euro and the US dollar.

EURUSD Rate Movements Can Often Explain GBPEUR and GBPUSD Moves

For any clients concerned with sterling against the Euro and US dollar, it is always important to keep a watch on behavior on the EURUSD. This week has seen a potential turning point in sentiment between the US dollar and Euro, as evidenced by a change in market perception as to how both Europe and the United States have handled the Coronavirus pandemic. Initially Europe were the concern when the virus first hit but now markets are increasingly concerned about the US.

If we turn back a few months ago, markets were very worried about the European economy and how both the economic and health effects of the Coronavirus would a fragile debt situation in Italy. Italy initially led the way in Coronavirus cases, but a series of firm lockdowns across Europe and a very notable pandemic recovery programme of €750bn has really helped to turn the situation around for Europe and the Euro.

Where the perception of the European response has progressively improved, we can contrast this with the perception of the United States, which has progressively deteriorated, as the virus continues to spread. There is also some concern over the political approach in the US, with Donald Trump initially calling the virus a hoax, then saying it would be over soon, to now saying it could get much worse and encouraging the use of masks.

Movements on EURUSD are important for those concerned with not just pound to Euro and US dollar trades, but also other currencies. The weakness in the US dollar this week helps explain the strength of the Australian dollar against sterling mentioned earlier in the report, as investors fearful over the outlook in the US sought to park funds in Australia where so far the battle against Coronavirus has been more successful.

All in all, the outlook for many currencies remains mixed, but a picture emerging of not so much winners and losers, but those performing less badly at the hands of Coronavirus, can help to explain the latest movements.

Only time will tell how accurate today’s viewpoint is, and that is the beauty yes also the frustration of the currency market, there is always another day coming with new information to generate new perspectives and influences.

Keep in touch with our expert team for informed commentary on the latest news and events to drive your exchange 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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