The pound to euro rate has been testing fresh highs of the week, knocking on the door of the 1.11’s, hitting 1.1128 at it’s peak on Friday. The pound has been very sensitive to any news on Brexit with fresh uncertainty or optimism being a real trigger.
This week had seen Barnier in the UK for more trade talks with Bloomberg reporting a deal was being lined up for early November, hence the recent strength for the pound. However, the pound has dipped against the US dollar, why is this?
This week the ECB (European Central Bank), the Eurozone equivalent of the Bank of England stated they might need to look at further economic stimulus in the future as the COVID-19 situation triggered further lockdowns in France and Germany, the Eurozone’s two biggest economies.
And across the pond with the American election looming and markets becoming a little more concerned about what lies ahead, the US dollar resorted to its typical safe haven status and rose in value as investors craved certainty.
GBPUSD interbank rates dropped to fresh lows in the 1.29’s, GBPEUR hit a fresh high, some interesting trends going into next week when we have the Bank of England meeting and also two monumental political events beckoning.
US Election and Brexit Could See a Busy Start to November
The currency market has been so keen for Brexit news for so long it has been keeping the pound in a bit of rut with very limited volatility in recent weeks. GBPEUR levels have remained in a tight 2 cent band for the last month, with only 4 ½ cents movement I the last 3 months.
This is not excessive movement by any stretch and is indicative that perhaps we could be looking at some bigger movements in the future. Anyone who knows a little about the currency market knows that eventually when rates are a little more subdued, it is because markets are waiting for something to happen.
That something is the Brexit news for the pound, and also the news on the US election. November 3rd is the US election which could see a real change in sentiment on currency rates as investors react to the news.
Like it or not the US and the US dollar is a huge influence on economic sentiment globally and a key driver of financial markets. Politically too, a change or continuation in the White House could have some far reaching consequences.
For example, on Brexit, the strength of the deal the UK gets with the US is a seen as a key component for the UK’s success in the future. The is because trade with the US accounts for about 20% of economic output, so it plays a crucial role in the UK’s economy.
Biden has not been overly positive about the way Boris Johnson has conducted himself with the threats to renege on parts of the EU Withdrawal Bill. Nancy Pelosi, the House of Representative Speaker was also critical of the UK in this regard stating any trade deal would be in jeopardy.
On the other hand, Donald Trump has been rather vocal of his support for Boris and Brexit, and might if he wins actually help the pound to rise since he might be more keen to offer the UK a good deal in 2021.
Next week is also the latest UK Bank of England decision which ,might provide us with insight into how policymakers view the latest escalation of Corona cases. The same meeting by European counterparts this week at the ECB saw the Euro lose value and the pound could be under pressure if once again negative interest rates are discussed.
The currency markets have a number of interesting challenges to face in November as the market learns of key news on Brexit, the US election and survey’s the continued developments on Brexit. The next twists and turns could present all sorts of surprises and clients with any important currency transfers ahead should be very closely monitoring events and keep in touch with us for any key news.
Coronavirus has made the currency markets even more unpredictable and volatile in many respects, and we can help share with you the latest news and provide tools to help provide you make an informed decision and strategy on your transfer.
If you have an upcoming currency transfer and would like to learn more about the factors influencing GBP, EUR and USD exchange rates, please contact myself, Jonathan Watson, using the form below.