Brexit related headlines are once again the key driver for sterling exchange rates at the moment, as pressure mounts on UK negotiators to budge on multiple sticking points in order to agree a trade deal, before time runs out.
The UK Prime Minister, Boris Johnson has previously stated that he wants to know if a deal can be reached by the 15th of October, which many had viewed as the cut off point for a deal to be arranged in principal. This deadline appears to have eased though as some EU leaders such as German Chancellor Angela Merkel have mentioned that they think talks could lead up until the end of the year.
There will be an EU Summit this Thursday and Friday, which will give EU leaders a chance to assess the progress so far. There is around 1 trillion euros worth of annual trade at stake which is why both parties appear to be keen to agree terms, but the latest murmurings from leaders on both sides have been somewhat downbeat, and this has impacted the pound negatively.
During early trading on Tuesday sterling was in a general uptrend and the GBPEUR exchange rates hit a 4-week high on optimism that progress was being made, and the FTSE 100 index also broke above 6,000. But around midday an EU spokesperson demanded that ‘substantive’ movement needs to be made by Britain in relation to fisheries, dispute settlement and guarantees of fair competition according to reports from Reuters. This pushed the Pound lower with it finishing the day in negative territory against almost all major currency pairs. Ireland has also warned that time is running out for the UK, which is pertinent because Ireland is the EU member that would be most negatively impacted by a no deal Brexit. A spokesperson for Prime Minister Boris Johnson this week reiterated that he was willing to walk away without a deal come the new year, and that there is ‘no fear’.
Whilst Brexit is the key driver for sterling exchange rates at the moment, the recent references to the potential for negative interest rates in the UK from the Bank of England could also continue to impact the pounds value. It would be a first, and only necessary if there were further shocks to the UK economy. This ties in with another key topic for the UK also, which is Covid-19 and the potential for another lockdown. Economic updates are thin today but Andy Haldane of the BoE will be speaking this afternoon so I would expect any references to interest rate changes to potentially impact GBP exchange rates.
When the seriousness of the Covid-19 virus and lockdown measures surfaced earlier this year sterling exchange rates fell dramatically, with GBPUSD hitting a 35-year low. With Covid-19 cases beginning to climb along with the daily death toll.
Outside of the UK Brexit talks could also impact the euro along with increasing concerns surrounding the increasing numbers of Covid patients, with some major cities such as Madrid implementing lockdowns once again.
The US election is also heating up which could also impact USD exchange rates depending on the outcome. Since recovering from the virus himself US President Trump has been very active, both in terms of his campaigning and his extremely high levels of social media use, especially for such a high-profile figure. The polls have Joe Biden (Democrat) in the lead at the moment, so there could be a market reaction if the polls are incorrect as we experienced almost 4-years ago now.
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