GBPEUR Forecast – Internal Market Bill Drives GBP Lower

GBPEUR Forecast – Internal Market Bill Drives GBP Lower

The GBPEUR exchange rate remains on a weaker footing as Brexit uncertainty dominates the news headlines. The response to the internal market bill which was first heard about last week has been the sole cause of the sharp decline in the price of sterling with the EU considering taking legal action against the UK. The pound saw its worst performance since March last week against both the Euro and the dollar as the prospect of Britain leaving the EU without a deal increased. The pound lost 4% against both the Euro and the dollar wiping off recent gains in what had been a sustained narrow trading range. Rates for GBPEUR sit at 1.07, whilst GBPUSD has fallen to a low of 1.27

The UK internal market bill continues to cause controversy at home and overseas as the bill has gone through the House of Commons this week at pace. The UK’s proposal to break parts of the Withdrawal agreement has panicked investors who have sold sterling as the likelihood of a no deal Brexit has suddenly increased with only a month left until the EU summit mid October. It is worth remembering that Boris Johnson has signalled that if an agreement isn’t reached by this time then both sides should “move on”. In a sign of more weakness for the pound to come Jordan Rochester, currency strategist at Nomura expects the pound to fall to 1.02 if negotiations do in fact fail. HSBC analysts are suggesting a move to 1.20 for GBP vs USD in the coming months.

The UK internal market bill is working its way through the House of Commons and House of Lords which could result in more volatility for the GBPEUR forecast.

UK Prime Minister Boris Johnson told MP’s last week that the bill was “necessary to stop foreign power from breaking up our country.” He also referred to it as a “fantastic bill”.

The political upset is not to be underestimated either as the toxic conversation of Brexit remains unhealed. The Financial Times reported last week that a backbencher said “The moment is not there yet. But the Lords will rip this thing apart. So the question is: what happens when it comes back? It’s getting choppy out there.”

Those with pending currency requirements would be wise to pay close attention to all of the latest Brexit developments as there could be considerable market volatility in the immediate future.

The outlook for sterling also remains dogged by COVID-19 uncertainty. There are currently a rising number of confirmed cases in the UK as well as in the EU. Measures have been introduced this week to support social distancing in the North East of England. That prospect of a second wave is leading to a fall in consumer and business confidence. The economy has gained traction in lots of ways but it remains unclear as to whether the recovery so far seen is going to be sustainable at a time when the government has chopped and changed the restriction rules. As from Monday this week gatherings have been limited to six people. The British economy expanded for the third straight month in July as restrictions were eased especially in the services sector. UK Gross Domestic Product grew 6.6% in July although the growth was not as strong as that seen in June which recorded 8.7%.

The UK has a very long way to go to recover though from the 20.4% quarter on quarter contraction in the second quarter. Rain Newton Smith, chief economist at the Confederation of British Industry said “With government support schemes coming to an end and renewed uncertainty over Brexit, clearly the road back to normal is going to be a rocky one.” There is now a greater likelihood that the Bank of England as well as the Chancellor Rishi Sunak will need to intervene once again in the months to come.

The pound to dollar exchange rate has now fallen by over 5 cents in the space of a month. The US dollar is almost certainly set for considerable volatility with the 3rd November Presidential election nearing. With so many immediate concerns in the US whether it be COVID-19 or the widespread protests it makes this election extremely difficult to call. Whilst Joe Biden is well ahead in the polls it will all depend on a number of key swing states which will determine the final outcome.

Get in touch to discuss these factors in more detail and the options available to limit your exposure to the changing currency markets, I’ll be happy to respond personally to discuss your requirements.