The pound has recovered further this week with positive movement against both the euro and the US dollar, and taking rates to a twenty-day high against these currencies. GBP to EUR currently sits at 1.1170 and GBPUSD is at 1.2580.
The UK Chancellor Rishi Sunak announced substantial measures on Wednesday to promote economic activity including a major change to the stamp duty threshold at which tax is paid on property sales as well as initiatives to try and get customers back into restaurants and on the high street. There is also an incentive to see furloughed workers return to work. Although there was little market reaction to the news the hope is that these measures along with all the other initiatives from the government and Bank of England will help ensure a V shaped recovery where the bounce back to normality from this recession is rapid. The two single biggest drivers for the price of sterling are the ongoing Brexit trade negotiations and the state of the economy following a lockdown, which has dealt a heavy blow to the British economy.
Brexit Negotiations This Week
Brexit negotiations were wrapped up early for a second week running yesterday with reports emerging of far reaching impact after the transition period ends. Trade talks between Britain and the EU intensified at the start of last week and will continue throughout July. German Chancellor Angela Merkel told the EU to prepare for no deal after Boris Johnson reportedly told her that he was prepared to walk away from the negotiations. Once again the juncture of deal or no deal approaches with the stakes running high for the pound depending on that final outcome. With parallel trade talks taking place between Britain and the US there could be a bumpy ride ahead. With the US 2020 presidential election also approaching it will be interesting to see how UK & US politics play out at this crucial juncture for the future of the United Kingdom. It has been reported this morning that the UK and Turkey are also close to being able to sign a trade deal. Those looking to buy or sell euros are likely to see considerable volatility in the weeks and months ahead as the pressure on builds on both the UK and EU to strike a deal which will be beneficial for both economies.
As things stand the UK has left the European Union and is halfway through the transition period which will finish at the end of 2020. The last four years since the June 2016 referendum have shown that the prospect of a no deal Brexit sees the pound perform badly and when a deal is within sight there has been significant movement to the upside with pound strength. With such major changes in British politics, not least two prime ministers which have gone as a result of Brexit, the pound to euro forecast is proving inherently difficult to predict with so many moving parts. In recent times the pound has become something of a political currency which is normally reserved for developing countries.
UK Economic Data
Economic data is light for the UK as we end the week ahead of a much busier calendar next week. Bank of England Governor Andrew Bailey will be making a speech on Monday and any comments or guidance as to future policy could help direct the price of sterling. Crucially how the Central Bank sees the recovery from COVID-19 especially after Wednesday’s announcements from Rishi Sunak could see further volatility for sterling exchange rates.
UK Gross Domestic Product (GDP) data is released on Tuesday from the month of May which will be keenly eyed to determine how well British companies have responded to being in lockdown. The National Institute for Economic and Social Research will also release its own GDP forecasts later that day and is often seen as a good barometer as the current state of economic growth.
Across the pond US non-farm payroll numbers released last week showed a further monthly rise with 4.8 million jobs being created in June which was substantially higher than the 2.7 million increase seen in May. Both months combined would suggest that the US has now put back in work about a third of the sharp drop that was seen at the onset of COVID-19. The sharp improvement in the US labour market is important as it is a sign that global investor confidence will improve which may impact on all of the major currencies.
Get in touch to discuss these factors and how they’re likely to impact your currency exchange in the coming weeks.