This week proved another challenging one for the pound to euro exchange rate as it both rose and fell, reflecting many mixed signals in the currency market and the world. By nature a ‘mixed’ picture of events reflects a lack of clarity, and therefore we have seen the pound at time weaker on this uncertainty and lack of clarity.
For the UK the effects of Coronavirus are clear with a marked slowdown in the economy and increased uncertainty over the future health and economic outlooks for Britain. However, where this health and economic challenge generally presents a problem for any other country affected by the pandemic, the UK has another issue to contend with in the form of Brexit.
Whether you are for or against Brexit, or indifferent, the lack of clarity over the UK’s future trading terms with the EU, its biggest trading partner is presenting tough questions for the currency markets around the pound.
On these two key topics, Brexit and Coronavirus we can still present wildly different scenarios of how it might play out. For Brexit it is the potential for a very positive trade deal with the EU (which it can be argued might help the pound to rise) versus the no-deal option with trading on WTO (World Trade Organisation) Terms, which judging by past behaviour could see the pound weaker.
For Coronavirus, the potential of a second wave and further lockdowns could easily knock further confidence in the pound, whilst the prospect of a gentle return to normality as hopes of a vaccine and green shoots in the economy surface, could trigger a rise for the pound.
Whilst this mixed picture continues on these two key topics to influence sentiment, the pound to euro exchange rate may remain under pressure as investors have little appetite for sterling to back it with limited reasons to be overly optimistic at this stage.
Key News Next Week to Influence Pound to Euro Exchange Rates
Next week sees the latest US interest rate decision which could be a really interesting time considering the volatility on the US dollar lately. Last week, the US dollar weakened quite sharply against both the Euro and the pound, as investors took fright at some of the latest developments with the Coronavirus in the US.
Where the FX markets generally saw the US dollar rising back in March as COVID-19 spread throughout the US and Europe, there has been a change in sentiment as it appears Europe are getting a better handle on the situation.
The recent €750 bn pandemic response program by the European Authorities has really helped to shore up confidence and in contrast to the US currently, gave the markets much more confidence over the European approach to tackling the health and economic effects of COVID-19.
In the US, Donald Trumps comments that the situation might ‘get worse before it gets better’ only further fueled the uncertainty about the outlook for America, particularly with a key election approaching.
Therefore, next week’s US interest rate decision could prove pivotal and instrumental in shaping the next direction. Ultimately there is a responsibility for the US central bank to provide confidence and security to the US economy, markets may well take extra interest as we approach the US election in November.
This week has shown us how important developments abroad can influence sentiment that affects the pound. GBPEUR arguably rose and fell this week because of movements on EURUSD exchange rates, as much as specific sterling related news.
Brexit talks will also begin a again next week so any clients considering purchasing Euros with pounds, or selling Euros with pounds might wish to make some contact to get the latest news and information to drive the levels.
The pound as mentioned has some extra weight to carry at present, which has led some forecasts to paint a more negative picture, whilst any signs of optimism and better news could easily see the pound bouncing back, as it did manage to at some points this week.
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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