The Pound sterling forecast remains vulnerable against the majority of major currencies, with several contributing factors. In times of global economic uncertainty sterling is not considered to be the destination of choice amongst investors. This is due to the huge imbalance between imports and exports. Add to that Brexit and you really have a currency that will struggle.
If you look at GBP/EUR for example we have not been above 1.12 since 9th June. There have been some decent gains against the US Dollar but this can be attributed to US Dollar weakness rather than Sterling strength. USD is considered a safe haven currency and usually strengthens during periods of global economic uncertainty. Now, however we are seeing investors start to lose faith in the greenback. Covid-19 is reeking havoc in the US and the government does not seem to be able to manage the situation. This could have a huge economic impact in the US and when you couple this with political instability due to the presidential election investors are flying the coop.
The key market mover for Sterling despite the pandemic is Brexit. The market moves on rumour as well as fact and whenever we hear rumours suffering in regards to negotiations we see fluctuations in GBP value. Over the past few years there has been several occasions where is looked as though a deal may come to fruition only for shortly afterwards negative press to be released and the gains are lost. One of the key examples of this is fisheries, one minute it looks like a deal is on the table the next we seem a million miles away.
Fisheries is one of the key issues that needs to be resolved in order to get a deal done and at present there still seems to be little indication this is going to happen.
Boris Johnson is now playing a dangerous game. Johnson had until the end of June to call for an extension in talks, something that he was adamant he did not wish to take up. The UK will now leave the EU at the end of 2020 with or without a deal. A no deal Brexit has the potential to hit the pound hard with Commerzbank predicting 1.02 on GBP/EUR. I am not so pessimistic, as I mentioned earlier the market moves on rumour as well as fact and I think to a no deal is already largely factored into current levels on the currency market. The historic average since the euro’s creation in 1999 is 1.33, we now sit at 1.11.
I am not so convinced a deal will get over the line, or not a good one at least. It is not in Brussels interest to grant Britain a favourable deal. If the UK were to be seen to be much better off out of the EU what would stop other members of the bloc following suit. Italy would be very keen, having been vocal about their unhappiness with funding from Brussels. Spain may also consider to leave who also have their grievances. It may be the case that Brussels are doing their utmost to make the UK’s exit from the EU as difficult as possible in order to ward off any other members of the bloc from following suit.
The latest a deal can be agreed to allow implementation is October. Expect volatility as we draw closer to the deadline as no doubt it will go right to the wire.
If you have to move short term selling Sterling it could prove wise to take advantage of current levels with the exception of the Dollar which has it’s own issues.
As mentioned previously 1.12 on GBP/EUR seems to be a firm resistance point so maybe aim to trade when the market sits in the 1.11s.
If you would like my assistance with your currency requirements please do not hesitate to contact me directly using the form below. I can keep you up to date with market information so you can make informed decisions about when to trade.