It has been a volatile 6 months for pound to euro exchange rates. Before countries started to lock down in March the pound was performing well and GBPEUR was trading close to 1.20. However due to the UK’s trading habits the pound has come under severe pressure due to the pandemic, and GBPEUR mid-market exchange rates have been as low as 1.06. At the time of writing this article we have seen an improvement to the 1.11.
UK Employment Weighs on the Pound
This morning the UK released their latest employment numbers, and it was no surprise that employment decreased considerably by 220,000 according to the office for national statistics. The pandemic has put major pressure on firms to retain their staff due to large proportions of the economy being shut down. Now that the Government furlough scheme is coming to an end, it will be interesting to see if employment numbers continue to decline and by how much. If there is a big surge in the upcoming months, I expect the pound could lose further value against the euro.
Positive News From the Bank of England
On a more positive note, the Bank of England (BoE) last week released their latest interest rate decision, and interest rates remained on hold at 0.1%. However, the Central Bank announced that they do not believe that the economy will be hit as bad as first thought, but they do think that the UK will take longer to recover. This news last week provided the pound a well needed boost against the euro.
Brexit Negotiations Continue to Weigh on the Pound
Bubbling away in the background, UK and EU negotiations continue to try and thrash out a trade deal. EU Chief negotiator Michel Barnier at the end of last month told the press that a deal is unlikely due to the UK stance on fishing rights and post Brexit competition rules. With the next set of negotiations set for next week, clients that are trading this currency pair need to keep a close eye on how events unfold.
On a more positive note, UK negotiator David Frost is optimistic that a trade deal could be reached in September. He stated last month that the EU have shown a ‘pragmatic approach’ which is good news. In other news, earlier this week the UK released that they are close to agreeing a trade deal with Japan and this could be agreed within the next 4 weeks. If countries start to line up for a trade deal with the UK this could strengthen the UK’s negotiating power and in turn could strengthen the pound in the weeks and months to come.
UK Growth Numbers to Finish the Week
Tomorrow the UK are set to release Q2 growth numbers. With the UK in lockdown for most of Q2, this reading could put severe pressure on the pound. The number is set to fall to -20.2, which would be the biggest decline seen for the quarter since records begun. However, markets would have priced this figure into the market, therefore if the number comes in slightly better this release may not put further pressure on the pound.
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