Pound Sterling rates suffered against the Euro and USD throughout yesterday’s trading, with fresh fears of a no-deal Brexit weighing heavily on the Pound’s value. Following a meeting of negotiators from both sides on Thursday, Brussels have deemed the chance of reaching a free trade agreement “unlikely” and Michel Barnier has claimed UK negotiators have shown no motivation to break the deadlock in talks. This comes at a time where businesses and individuals are already concerned over the future of the UK economy due to the Coronavirus pandemic.
As such, the Pound has fallen against most of its major counterparts and this is a trend we have seen every time the chance of a free trade deal not being met becomes more likely. Following the meeting, EU Chief negotiator Barnier said, “The time for answers is quickly running out. If we do not reach an agreement on our future partnership, there will be more friction.” This does not bode well for the future strength of the Pound and if frictions continue to mount, we could see the Pound weaken further. Looking ahead, discussions have not totally broken down and are due to reconvene next week. The next date to look out for regarding more formal negotiations is August 17th.
If you have a Sterling requirement pending, developments on this date could cause volatility in the Pound’s value and it is therefore worth speaking with your account manager here in advance in order to prepare for how this volatility could affect your transfer needs. We offer a range of contract options that could help you minimise your risk to adverse market movement, or indeed benefit should the market move in your favour.
USD rates strengthened against the Pound on the back of the Brexit developments yesterday but did start to tail off slightly in the afternoon on the back of jobs numbers being released. The number of US citizens claiming for unemployment benefits rose for the first time in 4 months last week amid growing concerns for how badly the jobs market is suffering amidst a new surge in Covid-19 cases in many States. Some States have been forced to shutdown businesses once again after a resurgence in cases, which has meant redundancies and uncertainty over job security. As such the number yesterday was significantly higher than analysts had previously expected.
Today there is a raft of data due to be released from the US which will give further insight in to how the US economy is coping in the face of the current pandemic and could therefore have further impact on USD exchange rates. Manufacturing and Services PMI for July are predicted to show a significant rise compared to last month and a reading of above 50 which suggests growth. If this is the case, then there could be a spike in USD value.
One of the currencies the Pound did make gains against despite yesterday’s Brexit news was AUD, as investor risk sentiment slightly decreased compared to earlier this week. AUD had been performing particularly well at the beginning of the week, with a wave of increased risk sentiment on the back of the news of positive Coronavirus vaccine testing from the University of Oxford and bullish comments from RBA governor, Philip Lowe in the minutes from their latest policy meeting.
In fact, strategists at Rabobank are of the opinion that, due to the currency’s recent gains, the RBA may use their next meeting to artificially weaken the currency in order to make their exports less expensive for their trade partners. Jane Foley, FX strategist at Rabobank, has stated, "We remain cautious about the outlook for the AUD on a 3-month view. With one eye on the currency, it is possible that RBA Governor Lowe will use the August 4 RBA meeting to sound a more dovish tone."
With AUD rates against the Pound at near 12-month highs, any clients with a requirement to sell AUD and buy Sterling may wish to speak with us to understand how we can help take advantage of these current levels.
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