The pound was mixed against the euro and US dollar on the interbank market in the past week, influenced by the coronavirus crisis and both the UK government’s and Bank of England’s (BoE) responses.

To begin, UK Prime Minister (PM) Boris Johnson announced the first cautious steps to ease the UK’s lockdown. The PM said that “anyone who can’t work from home, for instance those in construction or manufacturing, should be actively encouraged to go to work." This may help the UK’s recovery from the crisis.

Importantly though, PM Johnson maintained the UK’s social distancing rules, while adding that "this is not the time simply to end the lockdown this week." So, this could continue to influence the UK economy and the value of sterling. We will hear more today on the easing of the lockdown as Boris Johnson takes questions in parliament so for the latest updates stay in contact with your account manager.

UK GDP Data Lower Than Initial Forecasts

In addition, sterling was supported this past week because the BoE unexpectedly held both interest rates and its Quantitative Easing (QE) facility steady, at 0.1% and £645 billion respectively.

This surprised some financial market participants who thought that the UK’s central bank might announce further monetary injections. However, the BoE is still being tipped to ease further in coming months, which may influence the pound in future.

Looking to the week ahead, the UK’s GDP (Gross Domestic Product) figures for Q1 2020 are released this Wednesday 13th at 06.00 GMT. These are forecast to show that the economy shrank by 1.6% year-on-year, which may affect sterling too.

Infighting Between EU Nations Causes Euro Weakness

The pound to euro interbank exchange rate rose to around 1.14 in the last week, partly because Germany’s constitutional court queried the legality of the European Central Bank’s (ECB) vast monetary stimulus program. Germany’s court gave the ECB three months to legally justify its scheme, or risk losing the participation of the Eurozone’s largest economy.

Looking ahead, the GBP/EUR interbank rate might be affected by the ongoing Brexit talks, among other factors. Last week, European Union Trade Commissioner Phil Hogan remarked that "I am afraid we are only making very slow progress in the Brexit negotiations."

In addition, the Eurozone releases revised GDP statistics for Q1 2020 this Friday 15th May at 09.00. This are forecast to confirm a 3.8% loss quarter-on-quarter.

US Dollar Holds Onto Gains Against Sterling

Sterling fell versus the so-called greenback on the interbank market last week down to near 1.2350. This is although we learnt that US unemployment rose to 14.7% in April from 4.4% in March, according to the US Bureau of Labor Statistics, its highest since the Great Depression.

However, the US dollar nonetheless gained, in part because markets hope that the coronavirus crisis might “bottom out” in the foreseeable future, potentially aiding the US economy.

Also, the buck rose, because last week the governments of the USA and China affirmed their trade deal progress. The US Trade Representative's office said that "both countries fully expect to meet their obligations under the agreement in a timely manner". This too would favour both the USA’s economic recovery, and could influence the interbank rate.

Read our monthly currency forecast

Download here

 

News

Read more articles

 

Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.