The pound kicks off after the bank holiday weekend with continued growth this week despite the pessimistic outlook for a Brexit deal still very much up in the air. At the time of writing the GBP to EUR exchange rates are sitting just below the 1.12 level which at the peak of Friday's trading reached 1.123. To put that into context, that is almost a 3-month high unseen since 9th June. It does appear that the sterling to euro rates are becoming more volatile recently as the pairing have only been trading within a 2-cent radius between 1.09-1.11 for the last few months. Even over the long weekend, the range between peak and trough of the pairing was 0.8 cents.
The GBP/USD exchange rate is also seeing similar benefits, which could almost be putting it lightly, as the currency paring was trading on mid-market at 1.337 yesterday. Since it has surpassed the 1.333 seen in December last year, the result is a staggering 27-month high not witnessed since June 2018. With the US struggling on many different fronts, not least COVID-19 which will be mentioned in the USD section, there could be further opportunities for clients looking to buy into the US dollar.
It appears the markets are confused as to what direction to move in and potentially not taken into account certain factors as last week saw the announcements by the EU chief negotiator Michel Barnier claim that a trade deal “seemed unlikely” in order to get approval in October and ratified by the end of the year. The Brexit rhetoric continued from his UK counterpart David Frost who responded by saying that “little progress” had been made, with the UK fisheries being the recent obstacle which has halted further developments.
Previous mentions of a no-deal Brexit over the course of the 4 years of negotiations have had tendencies to cause weakness for the Pound as it increases the uncertainty within the UK and turns investors off due to the supposed political and economic instability which would not bode well for investor confidence and sentiment within the Isles. Currently, it is surprising that sterling, which had been afflicted by the multi-faceted problems generated by the pandemic and Brexit, is now seeming to making solid inroads against the single currency.
To finish off for sterling, whilst the UK’s data is light on the ground this week, Thursday will see the Bank of England governor Andrew Bailey’s speech in regards to the economic forecast for the rest of this year and moving into 2021. These announcements, depending on the tone and overall relation to bearish or bullish sentiment, has a direct influence on the trading of sterling and could therefore experience some market volatility as a result towards the end of the week.
The euro, despite its recent losses against sterling, has seen different results when it comes to the most heavily traded currency, the US dollar. For all countries globally, the pandemic and ensuing economic depression has certainly created an unprecedented period of time and few can be better exemplified than with the EUR/USD exchange rates. Over the past 30 days the currency pairing has seen 3 distinct peaks centring around 6th August at 1.187, 18th August at 1.193 and present date with yesterday trading at 1.194 on the market. In between these dates we have had 1-2 cent troughs showing the significant movements the paring has felt within just a few days. Despite the turbulence, it seems that 1.20 has been a key resistance level for the pairing over the last month and may need some further stimulus from events or new data out that could affect the euros performance.
Not much for the first have of the week is set to change the euros strength as the German Consumer Price Index (CPI), which dropped into contraction from a previous 0% to -0.1% yesterday, did little to move exchange rates. Yet, today’s Eurozone CPI is also predicted with little movement on figures but still expected to drop from 1.2% to 0.9%. Retail sales figures from Germany may mix things up though as July’s 5.9% reading is expecting to drop to somewhere in the region of 2.9% showing the continued economic slowdown that the Bloc has been facing. This follows the online shopping surge the UK has been utilising such as the likes of Amazon which has seen record sales in recent months but has not been carried over to their European partners. Europe’s retail sales as a whole will be released on Thursday which also follow the Germans path as the July to August drop is predicted at 2.2% from 3.5% to 1.3%.
It seems that the groups economic stability is continued to be put under strain, potentially worse than initially feared, as their UK counterparts had seen retail sales figures rebound into surprising growth. However, the UK will see the Job Retention Scheme ending in October and should domestic spending decrease in the UK as a result and further GDP contractions, the gains that sterling has made on the euro could soon diminish in the coming months.
The US, to an extent, is beginning to take some similarities to the UK at present as both have undeniably large economic and political issues to deal with at present. Both of course are struggling financially as a result of the Coronavirus but the likeness does not end there. Moving into the political sphere, just like the UK’s Brexit drama, the US have their Presidential election on 3rd November which is beginning to gain in both importance as we edge nearer to the date but also in terms of trading of blows from the current President Trump and frontrunner Biden as the campaign heats up.
With Joe Biden still holding a firm single digit lead over Trump, uncertainty creeps into the market as the Republican versus Democratic viewpoints will have their differing effects on the US economy and therefore makes for unsettling trading environments. This usually has the result in currency weakness and could see the EUR/USD creep above 1.20 as it now just needs a little push to get it over the line.
Amongst calling Trump a “weak” leader, in their latest session of insults, Biden goes on to say that “fires are burning and we have a president who fans the flames". It follows not only the massive issues the US faces in terms of the pandemic which on Saturday had now surpassed 6 million cases, it also goes deeper into the social divisions created from the Black Loves Matter campaign earlier this year amidst the most recent event of African-American citizen Jacob Blake being shot last month.
With multiple problems still being looked over on top of the fact that it is the worst virus-hit country globally, uncertainty is rank within the largest economy and may see further currency inroads to the US dollar before certainty and strength return to its markets.
It also seems apparent that there may be no support for the US dollar from an economic data standpoint this week as Tuesday’s CPI data is expected to arrive unchanged from last month at 54 and Thursday’s ISM CPI to also be unaffected at 54. The end of the week looks to settle on a sour note too as the all-important nonfarm payroll looks to plummet from last month’s 1763k jobs to 1400k representing 363,000 further job cuts as the US struggles with its upward battle against a gripping recession.
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