Sterling exchange rates have had another promising week against the euro, in fact hitting a 12-week high over the course of the trading day yesterday.
Without any obvious news that may have caused this, it seems that there are two factors that are leading to a surge in the value of the pound against the euro at present – Neither of them are Brexit, not at the moment anyway!
First and foremost, economic data for the UK has broadly been better than expectations. The housing market is experiencing somewhat of a boom which is totally against the usual scenario in a recession and other economic indicators are also showing strong signs at present, investors appear to be picking the pound as their currency of choice over the past week or so.
If you look at the dollar and the issues within the region along with the economic hangover looming from covid-19, not to mention a closely fought election bringing lots of uncertainty as to who will be running the country in just over two months’ time, there are good reasons for speculators and investors to keep the Dollar at arm’s length at present.
UK economic data is also outperforming that of the Eurozone as well, suggesting that the UK has so shot out of the traps a little better than many Eurozone countries. This is no great surprise given that tourism plays a major factor in a number of key countries within the Eurozone and with so many travel restrictions in place at present this must really be weighing heavily on economies who were close to tipping the scale in the first place.
This brings me on to the second point surrounding the recent gains for GBP on the Euro. Coronavirus cases within a number of key countries in the Eurozone are generally rising again with a number of outbreaks within key areas. Due to the increased numbers in COVID-19 cases there could be further lockdowns and further economic issues for the Eurozone which could be also leading to investors and speculators keeping their distance from the euro too.
Cases in Spain as an example have been back up above 8,000 for the past two days in a row, compared to just over 1,000 in the UK. This could lead to further restrictions and no doubt will be hurting the Spanish economy during what may be deemed as peak trading time in a number of Spanish regions.
However, there are a couple of potential banana skins for the pound in the coming weeks, when COVID-19 first started to take a grip the UK did run a few weeks behind many areas of Europe, so a rise in cases and a second wave for the UK cannot be ruled out, this may cause sterling to weaken off significantly as it did back in March.
On top of this a lot of the schemes bought in by Chancellor Rishi Sunak are starting to be unwound, so we may start to see economic data drop off from this too, alongside a sharp rise in unemployment to follow due to the end of the furlough scheme.
The second possible banana skin (or potential booster) is of course Brexit. Currently investors seem to be ignoring the minimal positive noise coming from either camp at present, however, should we see a heightened chance of a no-deal Brexit becoming a reality this could pull the rug from underneath the pounds feet. On the flip side of this, any positive news that a deal is on the horizon, even that of a bare bones deal may have the potential to push sterling exchange rates higher against all major currencies and could present an even better buying opportunity.
Today we have a flurry of services data from the Eurozone followed by services data for the UK. If the pattern follows suit and the UK figures vastly outperforms Eurozone data then the pound may have more to climb, tomorrow we have a similar situation for the construction sector to round off the trading week.
With so much going on in the currency markets at the moment it really is key to keep a proactive and efficient currency broker by your side who can inform you of any buying opportunities or adverse market movements against you.
Should you have a pending currency exchange to carry out and you have not made us aware here at Foreign Currency Direct please feel free to call us and speak to an experienced and friendly member of our trading team who will be happy to keep you abreast of the action in these seriously volatile times. We look forward to speaking with you.
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