How Could Further Lockdown Measures Impact Pound to Euro?

Pound to Dollar Rate Drops to One-month Low

Much of the economic headlines at the moment are focused on two key topics for the pound to euro exchange rate, Brexit and the potential for another COVID-19 related lockdown. Both topics have the potential to influence GBP exchange rates and have done in the past, and this week we are likely to see both in the headlines throughout the week.

UK Prime Minister Boris Johnson will be speaking later today in the House of Commons around 15:30 BST, and he’s expected to announce further lockdown measures which will impact mostly the North of England which has struggled to contain the virus breakouts recently. A three-tier system is expected to be announced and so far this hasn’t impacted the pound negatively although after PM Johnson’s speech within the House of Commons he may also speak at a press conference so his comments could impact the pound’s value.

For those of our readers that has just begun looking into the pound’s currency exchange fluctuations, earlier this year when the strict nationwide lockdown measures were introduced the pound fell against most if not all major currency pairs, with cable (GBPUSD) falling as low as 1.15 which was a 35-year low. The pound also fell to around an 11-year low against the euro when it hit 1.0520 so a repeat of strict lockdown measures could spook the markets, and hit the pound is there is a repeat of what happened earlier in the year.

How Could the Announcement of a Brexit Deal Impact GBP Exchange Rates?

This week was previously expected to be crucial for the UK economy, and therefore the pound’s value. It is now difficult to tell whether there is such pressure on UK negotiators in relation to having a Brexit deal in place by the end of this week. An EU Summit will take place and previously it was being labelled as a cut-off point for which a Brexit deal needed to be in place. This would then have allowed the new trade rules to be written into legislation before the new year. The goalposts appear to have been moved though as a number of key personnel within the EU trading bloc have noted that talks could continue up until the last stages. At the last round of trade talks there wasn’t any updates of statements afterwards as has been the norm over the past few years.

The pound to euro exchange rate has remained very flat as a result of the lack of updates regarding the talks. It’s remained range bound and trading between 1.09 – 1.1050 with some days experiencing less than a half a cent of movement from the day’s highs to lows which is quite unusual, especially considering that this week was expected to be the cut-off point for a Brexit deal to be agreed upon.

UK Economic Output Slows

There was a disappointing economic update from the Office for National Statistics (ONS) last Friday, when the Gross Domestic Product (GDP) figure for August showed that the UK economic recovery from the coronavirus pandemic dropped off during that month. There were expectations for the figure to show growth of 4.6% compared to the previous month, but the actual figure came out at 2.1% which is just over less than expected. Usually this would result in a sell-off for the pound as it’s quite a low reading compared to the expectation, but the pound remained resilient as markets await Brexit related updates. GDP is over 20% higher than its lowest levels this year so the recovery continues, but if it’s slower than expected this is something that could impact the pound’s value so keeping an eye out for updates such as GDP releases is worth it.

Economic updates are light today so it’s likely that the markets will await the two speeches from Bank of England members later today for clues regarding monetary policy etc. Jonathan Haskel will be speaking at 15:00 BST and then the Governor of the BoE will speak at 17:00 today so any unexpected updates, or comments regarding the potential for negative interest rates could impact GBP exchange rates so it’s worth keeping an eye out for updates relating to these talks. Get in touch to discuss these upcoming events using the form below, and how your currency exchange could be impacted.