Pound Sterling rates have ended the week slightly higher against the Euro compared to the start of the week following positive comments and news surrounding Brexit negotiations, but have struggled against USD with global uncertainty amid new lockdowns resulting in a flight to safety for investors.
Sterling has gained in value by just over 0.5% against EUR compared to last week and comments yesterday evening from President of the EU Commission, Ursula Von Leyen, look to have compounded these gains as we head into the weekend. Speaking at a news conference on Brexit progress, Von Leyen stated, “We are making good progress but the two critical issues, level playing field and fisheries, there we would like to see more progress…. We are now deep into how we would construct a system that is fair for both sides … which is a sine qua non for the UK to have access to the single market that is tariff free and quota free.”
Will Sterling Continue to Gain Against EUR?
With the headlines seemingly becoming more positive regarding the progress of talks and the ambition on both sides to strike a deal, GBP is making steady gains and holding firm against EUR. If a trade deal is to be agreed next month, many analysts are predicting that GBPEUR could hit as high as 1.15 in the near-term. However, if a deal cannot be agreed then there is every chance a move towards parity could be on the cards and there appears to be plenty of work left to do in order to reach an agreement on fisheries and a level playing field.
The Mid-November EU Council meeting us being touted as the next key date in which there would need to have been progress in order to increase the chances of a deal being reached by the end of the year deadline. As such there is the potential for plenty of volatility for GBPEUR exchange rates as we move into November.
Another factor that has helped Sterling advance against the Euro this week has been the ECB’s pledge to purchase more bonds to create further liquidity in December in response to the ongoing pandemic as more nations enter local and national lockdowns. At a news conference yesterday, ECB President Christine Lagarde told reporters, “We agreed, all of us, that it was necessary to take action and therefore to recalibrate our instruments at our next Governing Council meeting.”
There is certainly room for GBP weakness however, with data yesterday highlighting the struggles that the car manufacturing industry in the UK is facing due to the current crisis and with more localised lockdowns in northern and midland regions of the country coming in to force each day. September’s UK car manufacturing figures highlighted the lowest levels in 25 years due to a lack of demand from the US and is yet another sign of the difficulties the UK economy is facing. It is likely that figures such as these will keep any Sterling advances at bay.
Sterling Falls Against USD Following New Lockdown Measures
Whilst GBP has made some steady gains against EUR this week, the opposite is true for GBPUSD, with a flight to safety for investors early this week to the safe-haven shores of the Dollar. This move came on Wednesday after lockdowns being introduced in France and Germany, with investors concerned at how this move could affect the global economy in the coming months. This move could be set to continue, with analysts at IG stating, “The rush for the exits will continue for the time being. The impressive dive in European markets over the past few days has revealed how dire sentiment is towards this part of the world, with already weak GDP forecasts likely being hastily revised yet lower thanks to the return of lockdown policies.”
The upcoming US election on November 3rd next week is also likely to create volatility in the currency markets and could see GBPUSD make significant moves over the next few days. Joe Biden is currently leading the national polls against Donald Trump, but it is likely that the swings states will have a significant impact on the result over the coming days as each side targets voters.
If you have an upcoming currency transfer or would like to learn more about factors influencing GBP and EUR exchange rates, feel free to contact myself, Ben Fletcher, directly using the form below. I look forward to hearing from you.