GBP exchange rates endured a volatile time throughout yesterday’s trading and have started the week lower against USD and EUR compared with the end of last week.
One of the main reasons behind the pound’s struggles this week so far are the fears of how the current ‘second wave’ in Covid-19 cases could impact the UK economy amidst worries of tighter nationwide restrictions being announced. With Northern Ireland already imposing stricter measures last night, there are rumours surfacing this morning that pubs and restaurants will have to close by 10pm from the end of this week as part of a stricter set of measures to help control the spread of the virus. PM Boris Johnson is set to address the nation tonight at 8pm, and this could continue to cause significant GBP uncertainty. As this event is outside of our trading hours it may be prudent to speak with your account manager here before this evening to keep up to speed with the latest market movements.
As a result of all the uncertainty around how tougher restrictions could impact the UK economy, the FTSE 100 saw a £52bn sell off as investors pulled their funds out of the market and as a result the share index was down by over 3% yesterday. It was not just the UK affected, with US and European stocks also seeing a significant sell off as a result of increased investor risk sentiment globally. News of how big-name banks have been used by criminals to ‘finance terror and death’ have also not helped this issue, with a lot of investors fearing the sector will be hit by big fines as investigations into this issue continue.
In terms of data releases for the week ahead, Wednesday could create market movement with the release of Preliminary services and manufacturing PMI for September from the UK, Eurozone and US throughout the day. These figures can cause market volatility as they will usually give a good insight in to how well an economy is performing. With fears over a no-deal Brexit for the UK and concerns over tougher nationwide restrictions, looking at the initial expectations ahead of tomorrow, the UK looks as though it will see the largest drop in numbers. As such it is likely we could see GBP see further losses against USD and EUR as the week goes on.
Sterling has also started this week on the back foot against AUD but did recover some of its losses towards the end of the day and this could be down to the increased global risk sentiment. Although the pound has been negatively affected by this, the AUD is seen by investors as a riskier asset to hold and we saw AUD also weaken against USD as investors look for safe havens to hold their assets. Although the Aussie lost some ground against GBP yesterday, there is a chance we could see GBPAUD hit the lowest levels seen this year again this month depending on what the new nationwide restrictions in the UK will look like and the impact they have on the economy.
Covid-19 cases in Australia are tracking in the opposite direction to the UK after they announced their lowest daily increase in cases yesterday in more than three months. As such it is likely that restrictions there will begin to be relaxed soon and this would set the two economies on completely diverging paths. At the start of the outbreak when the UK was hit harder than Australia by the virus and therefore restrictions on the economy, we saw GBPAUD fall significantly and there is a chance we could see a repeat of this in the coming weeks. For those with an AUD requirement pending, PMI data released tonight and Retail sales figures tomorrow morning from Australia could spark further market movement and are worth keeping an eye on to see how they will affect your upcoming currency transfer.
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