Sterling is facing another potentially tough week as global sentiment continues to decline and worries of a second wave of covid-19 keep investors and speculators sticking to their recent risk off approach.

We saw the pound decline against most major currencies in the afternoon trading on Friday, with the GBPEUR interbank rate of exchange breaking through the 1.10 level, which at the time of writing this morning it remains below.

1.10 can be seen as a pivotal point for the GBP EUR currency pairing, historically it has tended to be somewhat of a resistance level which does leave where we may head this week on a knife edge, a further push and fall could lead to sterling continuing to decline quite swiftly through multiple levels yet should the pound hold off the challenge and get back up above 1.10 there may be some further gains to be had.

UK lockdown

There isn’t a lot working in the pounds favour at the moment however, with news over the weekend that the Government may have to consider a local lockdown in the city of Leicester and numerous scientists expressing concerns that the opening of pubs and restaurants on Saturday 4th July could be enough to lead to a second breakout of coronavirus for the country it is leading to many leaving the pound alone.

The global death toll for covid-19 surpassed 500,000 over the weekend so it is of great concern that the wrong move and opening up areas of the world too soon may lead to  a second wave and the damage that could do to many economies worldwide could be catastrophic, along with the unfortunate loss of many more lives.

Various states in the U.S have also announced that they are now retracting some of their lockdown lifting measures due to a surge in cases once again.

One of the reasons this news impacts the pound is that the concern of a second wave does impact the U.K stock market, we saw dramatic losses for the FTSE 100 back in March when the realisation came that coronavirus would sweep through the world, with a lot of the money invested in the U.K stock market being from overseas, shares were sold off and that money headed home, leading to a drop in demand for the pound and making it much weaker. We may see the same pattern emerge should a second wave look likely, so if you have a foreign currency purchase to make in the coming weeks or months then this should be something to watch closely.

Brexit talks to heat up once again.

Following on from Boris Johnson formally rejecting an extension to the Brexit deadline on 31st December, talks are due to start heating up again and both he and Ursula Von Der Leyen (President of the European Commission) have agreed to intensify negotiations in the coming weeks.

It seems like Boris Johnson is keen to get things done and the next three months I would expect to hear a lot more about Brexit and how things are moving along. From today a “restricted round” will mean that negotiations will continue to take place weekly from now until July 31st, as many regular readers will know Brexit news and the sentiment around how the talks are going can have a big impact on Sterling exchange rates, and this news often comes without warning so it is another key subject to be well aware of.

Boris Johnson has repeatedly said that he wants a deal done by the end of the summer and he has asked for more ‘oomph’ in this next round of discussions and has suggested that he does not want to see talks going on until the autumn and most definitely not the winter, with this in mind I would expect weekly Brexit news that will likely impact the value of the pound.

Data Releases of Importance

Economic Data This Week

We have a fairly quiet week for U.K economic data, as mentioned earlier in the report I think global market sentiment and any Brexit news will be the two key factors for performance of the pound this week, however two key points are Bank of England member Andrew Bailey speaking at 09:30am this morning and growth figures tomorrow.

Also tomorrow is the last day of the trading month and indeed the quarter, so you do tend to see quite a lot of volatility which is generally known as month end flows.

Month end flows is where large funds seek to net off their positions at the end of a trading month and can lead to quite drastic swings in exchange rates without prior warning, you do also tend to see this increase at the end of a trading quarter.

Which way these flows could push the market is an impossible conundrum to predict but I would suggest if you have a pending trade to carry out involving buying or selling the pound you contract the trading floor today so that we can let you know should there be a market movement in your favour, or should the rates move adversely against you.

We have very little out for the Eurozone this week, with German unemployment and a flurry of manufacturing data that same morning the most notable.

Over in the U.S we have Federal Reserve minutes from their latest interest rate decision, which may give us signs of what the next move may be from the Fed, with jobs data set to round off the week, this has been a big talking point in the states and non-farm payroll data at lunchtime on Friday may lead to a volatile end to the trading week.

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