UK Government’s Trading Stance Pivotal to Sterling Exchange Rates

Pound to Euro Reaches 2-Month High

Few would have predicted such tight ranges for sterling exchange rates given the 15th of October deadline for talks with the EU has been comfortably breached and Europe’s leading nations have just committed to a month-long lockdown. The reality however is that the markets have struggled to rally behind the pound as the long list of variables which could have been picked out at the end of the summer remain.

Representatives from the UK and the EU have been meeting consistently to provide that certainty. This week the markets received a boost. During yesterday’s trading Bloomberg reported a deal might well be secured by mid-November thanks to a favourable “shift in mood” however their sources have not been disclosed and as a result we have only seen a marginal uplift for the pound so far this week against its major currency counterparts.

Interestingly trade minister Liz Truss is due to lay out the blueprint for the UK’s trade policy moving forward. Her speech is expected to be particularly critical of practices put in play by Britain’s counterparts. Protectionism (US) and unjustified subsidisation (EU) might be highlighted as particular areas of concerns. It will be interesting to see how the market reacts to Truss’ proposals and how the UK might overcome these obstacles moving forward.

UK Data to Drive the GBP’s Value on the International Stage?

From an analytical perspective, there does seem to be plenty of drivers going into November, outside of Brexit, that might also pull sterling out of these tight ranges. A date worth taking note of is the 25th of November. This will be when Chancellor Rishi Sunak will outline the UK’s spending plan for 2021. Taking into account the uncertainty Covid 19 brings to the table and how quickly the UK might find itself in another round of lockdown, the announcement is expected to produce increased spending in infrastructure to bolster the jobs market, investment into the various health and tech sectors to support the fight against the virus as well as improved funding across public services.

To date, Sunak’s schedules have generally tended to have produced a positive reaction from the market however you could argue the list of economic data building up to the end of the month might have a considerable impact on the flexibility of this spending.

In terms of buying foreign currency in the immediate future, Nationwide housing prices are due for release tomorrow and might provide sterling with a boost. The Bank of England alluded to the substantial, though slightly artificial, pick up within the housing sector as a result of the stamp duty relief rolled out earlier this year.

Investors can look to the real estate sector as a key barometer for long term strength within an economy. In turn the currency in question can gain in value. It will be interesting to see if Sterling ends the week slightly higher as a result.

Will EUR and USD be Cheaper in November?

Given the tightness of ranges, it is understandable clients looking to buy either euros or US dollars have started to revaluate their target levels in line with what could be a particularly volatile month of November. Stock markers have seen an accelerated drop recently as a result of the regional lockdowns across Europe with a drop in business and consumer confidence expected to follow suit. It will be interesting to see how levels this week come out from the surveys conducted since the end of September. Up until now sentiment across the EU seemed to have been improving since the summer. This time around however businesses have been gearing up for this second phase of restrictions and so a slightly more negative tone could be expected. Should this filter through to todays releases and beyond might we see even more attractive levels for those looking to buy euros with pounds? Importantly, the European Central Bank is expected to edge towards more stimulus in response to growing fears of recession as a result of the second wave. Historically the Euro has lost value when the ECB has been forced to intervene. It will be interesting to see if this proves to be the case in November.

Furthermore, there could be plenty of opportunities for USD buyers in the weeks ahead. With Biden currently leading in the polls, might we continue to see the markets factor in the uncertainty a change of leadership might cause in the build up to the elections?

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