Sterling exchange rates have lost a little ground against most major currencies over the course of the trading week, most notably hitting a 5-week low against the dollar during yesterday’s afternoon trading session.
It seems that global sentiment is starting to slip again, and fears of a second wave of COVID-19 along with a major global recession are leading investors to batten down the hatches and take cover which is leading to some sterling weakness.
For those that were following sterling exchange rates in March, we saw the GBPEUR interbank exchange rate drop to just below 1.06 and GBPUSD drop into the 1.14s. A lot of this movement was put down to a drop in general market sentiment, which led to a vast amount of money coming out of UK stocks and shares. With the UK stock market generally having a lot of foreign money invested into it, those funds were withdrawn and taken back out of the pound, leading to a decrease in demand for sterling and therefore a drop in the value of GBP exchange rates.
There are concerns that a similar pattern may emerge in the coming weeks, but as with everything when in the midst of a pandemic nobody really truly knows what may happen next, we can only go off what we think may happen based on best endeavours and recent history.
Four days into the latest round of Brexit talks and it appears on the face of it that both sides are no closer to a deal and that the whole situation is still at a total stalemate. Boris Johnson still has red lines that he is unwilling to compromise on, including fisheries and the role of EU courts. It does seem like very little progress has been made at all since these negotiations began, and with 7 months to go and a pandemic to deal with it does make you start to wonder how this whole situation may pan out.
There is one more round of negotiations in the diary before UK politicians will meet in June to decide on whether or not to look to extend the Brexit deadline beyond the end of the year. So far there does not seem to be any desire to move the date from Boris Johnson and this is where the words ‘no deal Brexit’ may start to hamper the value of the pound once again if no extension is taken and it still seems like no progress has been made.
For those that have not been too involved in any currency exchanges recently a no deal Brexit being mentioned over the past year or so has tended to lead to sterling weakness, investors see this as potentially very bad news for the UK economy, and with the current bill for COVID-19 escalating at a wild pace, a no deal Brexit may not be the tonic that the pound needs at present.
The euro to pound exchange rate has remained in a fairly tight range this week, as well as against a number of other currencies.
The only slight blip on the pound’s performance since the start of May came on Wednesday when the latest UK Gross Domestic Product (GDP) figures came out. The expectation for the figures was for a fall of -1.6% to -2% and this caused the pound to lose some its recent gains vs both the euro and the US dollar.
Eurozone GDP data showed a fall to -3.8% which although was much lower than the UK this came in line with expectations and this helped to stabilise the single currency vs sterling.
As we go into next week we see the latest release of UK unemployment figures for March as well as Average Earnings data. This may not be that bad as the UK only began lockdown with a week to go in March so the figures may not show such huge falls. However, also out on Tuesday morning we see the latest release of April’s Claimant count figures which could cause a lot of movement for Sterling Euro exchange rates.
On Wednesday the Chancellor Rishi Sunak warned that the UK will be facing a ‘significant recession’ in during the next few months as the GDP data came in out its lowest since the credit crunch back in 2008. We saw a big fall for the first quarter but this was exacerbated by the huge fall in March and bearing in mind the UK was not in full lockdown until the 23rd March this is a big concern for the economy.
Therefore, as we begin to see the data releases for April coming during this month this could set off some alarm bells. However, at the same time it is worth bearing in mind that the Eurozone as well as the US are all struggling with their economies so it is almost a case of which economy has performed the least worst during this period.
This week, the US dollar has been rising in value against the pound following a series of poor economic releases for the UK seeing the pound weaker, and some fresh global concerns helping the dollar to rise according to its status as a safe haven currency.
GBPUSD interbank rates started the week at 1.2430 but have been as low as 1.2187 today, as the US currency finds strength against a weaker pound. On a 250,000 USD sellback into GBP at present, you would be getting an extra £4077 according to the interbank rate movements.
The US dollar has been rising on signs that there is future uncertainty ahead and with tensions between the US and China increasing, and some worrying US labour market statistics being released, the US dollar has risen on the fresh uncertainties.
US Jobless Claims have now risen to 36m since the lockdown started, which is a huge headache for the US government and central bank ahead, particularly in an election year. The US also ruled out the possibility of negative interest rates, which might have been a possible reason for the greenback holding firmer throughout the week.
Looking at the US dollar versus the pound, a week that saw the UK confirm an economic contraction for Q1 of -2% was always going to be tricky for the British currency which so often tracks the performance of the UK economy. Rishi Sunak, the UK Chancellor extending the furlough scheme and also announcing we are in a ‘significant recession’, the pound has really been under pressure this week.
Looking ahead for the dollar, continued uncertainty over relations with China might add some fresh uncertainty to the market. The playing out of the Coronavirus is continuing and with the US and UK the worst two affected countries, the potential for further shifts in sentiment exists ahead, in line with the previous movements and volatility we have seen on the pairing.
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