Following the Bank of England’s decision yesterday afternoon to increase their Quantitative Easing (QE) programme by £100bn, the pound suffered significant losses against EUR and USD during yesterday’s trading. GBPEUR rates hit the lowest levels seen since so far in June, whilst GBPUSD dropped to over a two-week low. If you have an upcoming transfer to sell a foreign currency and buy Sterling, it may be worth speaking with our experienced team to understand how we can help you take advantage of these current levels.
There had been rumors ahead of yesterday’s announcement that the BoE could also cut interest rates from the current record low of 0.1%, but monetary policy committee members voted unanimously in favor of keeping rates on hold. Had this not been the case, there may have been further declines in Sterling value.
With the impact of the Coronavirus pandemic resulting in the economy shrinking by more than 20% in April, economists believe that it is likely there will be further QE injected or a potential cut in interest rates later in the year to help boost the economy. When questioned on the possibility of negative interest rates, BoE Governor Andrew Bailey claimed that this could be an option, but that it was very complicated.
Jacob Nell, Head of European Economics at Morgan Stanley, stated yesterday, “We expect £300 billion more to be added to APF (Asset Purchase Facility) over the next 18 months.” Any clients with a GBP requirement should keep a close eye on developments in this topic as if there are further stimulus measures introduced this year, we could see the Pound continue to decline in value.
The pound has received a slight boost first thing this morning however, after better than expected retail sales figures for May were posted at 07:00.
Going forward the key driver for EURGBP exchange rates is likely to be developments in Brexit negotiations. The pound had gained earlier this week on bullish comments from Boris Johnson, it which he suggested that talks were looking more positive and that he believed the chances of a Brexit deal being agreed before the end of year deadline were looking good. Yesterday however, the European Parliament voted in favour of a veto to any Brexit plan that didn’t meet their demands.
A statement from the European Parliament said they would reject any free trade Brexit deal unless it contains “robust level-playing field guarantees and a satisfactory agreement on fisheries, The EU will not agree to a deal at any cost”. As we have seen historically, the value of the pound tends to suffer when the chances of a deal look less likely. Michael Gove added to this uncertainty yesterday, stating when speaking about the chances of a Brexit deal being reached, “If we haven’t secured significant progress by October, then it will be difficult”.
EU summit talks are continuing throughout today and reports from
EU summit talks are continuing throughout today and reports from the event are likely to cause volatility on GBPEUR rates. Keep in touch with your account manager here who can explain all the options we can make available and help you to stay informed of all the latest developments.
Although USD made gains against GBP throughout yesterday’s trading session, mainly due to the BoE decision to add to their current stimulus programme, the US economy is showing signs of weakness following their jobless claims numbers released yesterday. It highlighted there are as many as 29 million American’s claiming for unemployment benefits amidst the impact of the Coronavirus pandemic and stall in business due to the lockdown measures imposed. Speaking earlier this week, Federal Reserve Chairman Jerome Powell stated that, despite the signs of green shoots earlier this month, “significant uncertainty remains about the timing and strength of the recovery.”
The US dollar is often used as a safe haven currency by investors in times of global uncertainty and there are reports this morning that the dollar is gaining on the back of daily Coronavirus infection rates climbing once again in parts of China, along with continuing tensions between the US and Beijing.
Infection rates in Beijing have begun to rise and there are reports of localised lockdown measures being put in place to help stop the spread of the virus. Meanwhile, Donald Trump yesterday once again threatened to cut trade ties with China, despite a meeting with top US and Chinese officials taking place.
As a result we have seen commodity currencies such as AUD have suffer, whereas safe havens such as the US dollar and Japanese Yen have strengthened. Kim Mundy, FX strategist at the Commonwealth bank of Australia has said this morning, “We’re seeing a few wobbles in commodity currencies as focus is returning to the increasing infections. We still think the general trend of the global economy improving should weigh on the U.S. dollar and support commodity currencies, we’re just seeing a bit of a pause.”