Pound Sterling Forecast – Will the Recent GBP Recovery Last?

GBPEUR Showing Weakness Despite Strong Data

The pound sterling forecast has performed better this week rising against most currencies on some renewed optimism over the trade talks with EU negotiators, plus some strong moves by the UK Chancellor Rishi Sunak to combat the economic effects of the Coronavirus.

Ultimately, the rise has proved a little short lived against the Euro with GBPEUR interbank rates reaching a high of 1.1151 this week, before falling to 1.1112 at yesterday’s close. The opening today has seen a reversal however with the levels now at 1.1152, testing some of the better rates to buy Euros with pounds in the last three weeks, according to the interbank rate.

The optimism and rebound on sterling rates, which a week ago touched lows on the interbank rate of 1.09, might also be part of a reflection that actually the pound had been quite oversold in recent weeks.

There does remain many challenges ahead for the UK economy and the pound, but this recent rebound might well continue should certain events continue in the manner they are, that is increased confidence the UK government is doing all it can to stimulate the economy, and rising optimism over the avoidance of a harmful no-deal Brexit.

What Happens Next on Brexit?

Much of the negative viewpoint for sterling stemmed from a belief the UK was headed for a no-deal relationship with the EU, where the British Prime Minister Boris Johnson used Australia as a comparison of the type of trading arrangements the UK could have with the EU.

Australia enjoys near on WTO (World Trade Organisation) terms on trade with the EU, which by forming a fairly bare bones arrangement on trade, effectively represents a no-deal exit, something the currency markets have long feared.

Positivity then that Michel Barnier was considering allowing British Financial Services firms to operate in the EU, gave the markets some confidence to back sterling since such an arrangement would be very beneficial to the UK economy, as the UK relies heavily on financial services for its strength.

Barnier is the EU’s chief negotiator and his desire to seek compromise with the UK at his meeting with David Frost, the British representative of the trade talks saw sterling find some support by removing some of the more recent uncertainty.

There is still lots to do finalise a new trading arrangement for when the UK leaves the EU at the end of December, but any signs that a trade deal can be worked on could see the pound find favour and is definitely worth monitoring.

Will the Pound Rise or Fall Today and For the Rest of This Week?

The continued fallout from the UK Chancellors positive announcements might also help to fuel sterling sentiment this week, as the markets generally reacted positively to the range of measures. This has so far played out this morning with the pound over 1.26 against the US dollar and 1.1150 on GBPPEUR, both interbank rates.

The British government’s announcement to pay companies £1000 to hold onto furloughed workers until the New Year helped bolster overall sentiment, whilst discounts on eating out and a stamp duty freeze all helped to ease some of the more immediate concerns.

The pound it might be argued had perhaps already had plenty of time to digest the news, so in the end it was not too much of a market mover but overall the measures seem to have been taken well in the press. Whether it will be enough will remain to be seen, but there is definitely potential here for more optimism as the government is being seen to be proactive in tackling key areas of the economy like the hospitality and restaurant trade.

For the rest of today and tomorrow there is no UK data of significance but further fallout from the Chancellors news, plus further headlines on Brexit could offer bigger movements. Next week is the latest UK GDP data for May, where all eyes will be keen to see if the economy improved following April shock 20% decline.

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