Sterling remains vulnerable and could remain weak for the foreseeable future. The pound is not the destination of choice during times of global economic uncertainty due to the huge imbalance between imports and exports. The pandemic is going to hit the UK economy hard and the extent of which is yet to be gauged. The pandemic however does not seem to be the key market mover however as many countries are in a similar boat to the UK. Brexit seems to be the key market driver.
Boris Johnson has now ruled out any extension on Brexit negotiations post 2020. If a deal is not agreed the Pound has the potential to lose substantial ground against the majority of major currencies. A deal must be struck by the enc of October in order for a deal to be implemented by the end of the year. The pressure is on and there are still key points of contention yet to be resolved, the Irish border and also fisheries. Commerz Bank are predicting GBP/EUR could go as low as 1.02 were Britain to leave without a deal.
Theresa May has had several years to get a deal over the line and she has been heavily criticised for her negotiation technique, some claiming she lacked ta backbone n talks. Johnson maybe finding out the hard way this is not the case. Could it be that Brussels are not willing to play ball?
It is not in the interest of Brussels to offer a favourable deal to Britain. If the UK were to leave with a strong deal what is to stop other nations following suit. The PIGS (Portugal, Italy, Greece and Spain) for example may wish to leave. Italy have been vocal for sometime regarding their unhappiness with Brussels due to a lack of funding.
Germany have also stressed how unhappy they are taking on collective debt for other less affluent nations. They recently took it to talk over what Germans considered to be unlawful use of Quantitative Easing (QE). QE is effectively borrowing huge sums of cash and pumping it into an economy in order to stimulate growth. It ‘s success is questionable.
Until we have clarity on Brexit Sterling will remain vulnerable, if we look at GBP/EUR for example we have not been above 1.12 since 9th June. If you are selling GBP to buy Euros it may be wise to take advantage of current levels as it is difficult to find justification as to why the Pound will go up in value.
The Euro also may benefit from the Corona crisis in the US. The US Dollar is considered a safe haven currency and we often see gains for the Dollar in times of global economic uncertainty. In the current situation however, with Covid -19 being wide spread throughout the States investors are starting to question the dollars status as a safe haven currency.
We are already started to see the US Dollar lose ground as investors lose confidence in the greenback. The Euro could be the main benefactor with EUR/USD already sitting above 1.17. This should not be taken lightly by those who have a pending transfer GBP to Euro, things could get worse.
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