The pound sterling forecast has experienced a week of continued volatility as learned of the latest UK economic news and as expected, the reading was pretty grim. The deepest recession on record, with a major contraction of 20.4% for Q2, from April to June of this year for Britain.
Unemployment is also a cause for concern since whilst the headline figure for jobless isn’t creeping us majorly as some predicted, we have seen the millions on the government furlough scheme weighing on sentiment, and the UK jobless total is expected to rise significantly in the future.
The pound did lose value on Wednesday at the announcement of the 2nd quarter GDP (Gross Domestic Product) figures, but not too much since it can be argued the news was already to a degree priced in.
In terms of what the remaining outlook for August looks like for the pound, this economic news may well form part of the conversation. It is notable that the UK has experienced the most severe drop in output amongst the leading G7 nations in the world, and it is second only to Spain in Europe in the ‘worst economic growth’ charts.
It appears the length and severity of the UK’s lockdown, which was longer and more disruptive than in some other countries has contributed to this situation. Consumer spending in the shops and bars and restaurants is a key feature of the UK’s economic health, and this is where we have seen some of the biggest falls.
With infections rising across the UK on many measures, and various fresh lockdowns in places, the potential for worse news definitely exists. Sterling might well find some support if we can see any signs of further economic health, but for now the mood has been less than positive.
What News can We Expect Next Week to Move Sterling Exchange Rates?
Next week sees further UK data in the form of the latest UK Retail Sales data and also Inflation data. These releases might not quite carry the same weight as the growth data but could certainly provide some reasons for volatility.
Looking to other events to move the rates, the continued outlook on COVID-19 of course seems like a key point to be conscious of. The currency markets are very much focused on both the global and domestic outlook at present with investors keen to determine the trends.
Just lately, where the United States had been one of the worst performers, the number of new cases has plateaued which has seen the dollar find some strength after having lost a lot of ground to the Euro and pound in recent weeks.
This is one of the reasons why GBPUSD levels have soared over the 1.31 mark recently, but just lately the US dollar has been a little stronger. The strength of the US dollar was seen because of the improvements in economic data with nearly 1.7 million new jobs created last month.
The tide has turned for the Euro too, but where sentiment on the US currency had shifted to less negative, the Euro outlook is now arguably less positive following an increase in the number of cases in France and Spain amongst others, prompting the UK to introduce fresh quarantine rules on many new countries in Europe.
What is theLlongerTterm Outlook for the FX Markets?
Looking further ahead the messages are still mixed for the pound and other currencies as we await fresh news on which direction certain events are taking.
It feels on many issues we are at a crossroads where events could turn out much worse or indeed much better. An example would be Brexit where investors are still bracing for a no-deal but also need to prepare for a deal scenario. The conflict means investors cannot truly commit their investments one way or the other, they need clarity.
And so it is true on Coronavirus because we are still potentially looking at further deterioration and lockdown, whilst we could also see signs the vaccine is making impact and helps the global recovery as everyone gets back to some kind of normality.
All in all, there are still many directions some of these key events could take, and it will ultimately be the outcome from those events and the market reaction, which determines how the pound and other currencies will perform.
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.
If you would like to discuss the markets in more detail, please do contact me directly using the form below. I’ll be happy to respond personally and discuss the outlook for the pound for the rest of August and how it may impact your currency exchange.