The resilience of the pound forecast was reinforced during yesterday’s trading as the Bank of England’s upbeat tone appeased the markets about the UK economy’s long-term solvability as companies battle through the current crisis.
The growing fear was a sudden shortage of cash flow across UK businesses with deficits racking up to an estimate £200bn. This could then lead to severe credit losses for the UK’s major banks and as such lending conditions would begin to suffer quickly as the year went on. However, in it’s statement, the Bank of England’s Financial Policy Committee produced the results from it’s latest stress tests has the capacity and the vested interest to keep supporting UK businesses and households through these difficult times. Indeed, according the results, it would take around twice the amount of cumulative loss to the economy than the amount currently forecasted by the Bank of England for lending conditions to be truly compromised which suggest the long term outlook is at least positive. This naturally helped bolster the pound’s value against it’s major currency counterparts, with sterling driving once more towards the key 1.11 mark against the euro whilst equally making inroads towards 1.32 against the US dollar.
It is worth noting however that the FTSEE 100 index did fall in response to key factors within the BoE hearing. The 1.5% fall is said to be driven mostly by Governor Bailey’s suggestions that the infamous V-Shaped recovery isn’t looking as likely in the immediate future at least which has potentially left investors to shift their positions towards options showing greater imminent promise. If this proves to become a consistent trend you could argue the pound might suffer in the medium term. Should investment opportunities in the UK lose their edge across the international market you could expect demand for sterling to contract.
As per this week’s evidence, financial policies implemented by central banks remain a key driver within the currency markets and as such further hints provided by the Bank of England should be closely watched if you do have a currency requirement involving the pound. You are welcome to register your interest on the link below if you would like to be contacted by a dedicated trader who can cover your options.
Jobs Market to Hold sterling Growth Back
With the Pound now hovering close the key 1.11 resistance point against the euro, questions around the UK’s jobs market once again look set to play a pivotal role in determining sterling’s next course on the international stage. The Bank of England recently confirmed they are projecting unemployment levels to potentially hit record breaking highs of 7.4% before the end of year which in turn could have drastic consequences for the economy moving forward. This contraction in activity could filter through to consumer spending and ultimately seriously hamper the flow of funds within the UK economy. Sterling exchange rates could well be stalling ahead of next weeks unemployment claimant count and average earnings release for the month of June.
GBP EUR Forecast: What is Helping the Euro Hold its Ground?
The pound’s struggle in holding its ground above that 1.11 mark isn’t just a reflexion of uncertainties within the UK economy. The markets could also be pricing in the promising signs seen across Europe. Recent indicators are gradually starting to mirror stability across the bloc and yesterdays figures form the industrial sector were no different. As Europe’s 4th largest economy, production levels in Italy have been a market mover in recent times, particularly given the political turbulence over the course of the past 24 months or so. As a result, yesterday’s industrial output levels surprisingly positive release, hitting -13.7% against the expected-16% for the month of June might have been very well received from investors.
Crucially, It might be Germany’s recent factory orders release that is helping support the single currency the most as we end the week. There was a long list of indicators building throughout 2019 that Europe’s powerhouse Germany was edging closer to recession and the concerns of deep contractions within the economy were mounting throughout the spring and early summer this year as a result of the virus. It seems however that Germany’s manufacturing sector has responded positively to the added stimulus provided by the European Central Bank, which in turn might suggest added job security with one of Europe’s leading industries. This bodes well for future prosperity within the bloc and might explain the added resistance the Pound is facing at present. It will be interesting to see if this is reflected in next week ZEW business confidence release from Germany. Added positivity here could shift the balance for the GBP EUR pairing at which point a new trend might begin to form. Certainly something to consider for those in the market for euros at present.