The Bank of England announced on Thursday that their Quantitative Easing (QE) programme will be increased by £150 billion, higher than the £100 billion expected, but that interest rates will remain on hold at 0.10%.
Typically, you would expect the pound to weaken on an announcement of a boost to QE, as an increased circulation of the currency would devalue it as a result. However, the fact that rates remain unchanged and that there was no mention of negative interest rates seem to have helped buoy the pound’s value.
In addition to this, Rishi Sunak, Chancellor of the Exchequer announced an extension of the Coronavirus furlough scheme up until the end of March, along with further support measures for the self-employed. In an address to Parliament, Sunak said, “It’s clear the economic effects are much longer lasting for businesses than the duration of any restrictions, which is why we have decided to go further with our support.” The length of the extension well into next year could bring in to question how long lockdown measures will be set to last and therefore the longer-term effects of the extra spending on the strength of the economy.
The outlook for the economy and therefore the value of the pound looks bleak due to the eye watering spending needed to help prop up the economy throughout this period. There is an expectation that Britain is heading for a budget deficit of 20% of Gross Domestic Product (GDP) this financial year which would be the greatest since WW2. The BoE have also said that, despite the current furlough scheme, they expect unemployment to hit around 8% in Q2 of 2021, almost double the most recent levels recorded. With this in mind, it’s likely that the pound’s value will come under pressure and therefore highlights the importance of staying in contact with an expert who can keep you up to speed with all the latest market movements.
With little data out from the UK today, key dates next week include UK GDP data on Thursday and unemployment numbers on Tuesday.
The BoE downgraded their GDP forecasts for the UK this week, and their monetary policy report suggested they expect a 2% decline in GDP for the fourth quarter of this year. If Thursday’s numbers support this, we could see GBP fall.
GBPEUR has steadily climbed over the past 30 days, owing to more positive headlines suggesting that Brexit talks are headed in the right direction for a deal to be agreed before the end of the year. There is however fresh uncertainty expected for the currency pair, with both sides stating on Wednesday that although progress has been made in recent weeks, there is still along way to go.
Speaking earlier this week, Michel Barnier, the EU’s chief negotiator, stated "despite EU efforts to find solutions, very serious divergences remain in Level Playing Field, Governance & Fisheries. These are essential conditions for any economic partnership." UK Chief negotiator David Frost echoed Barnier’s comments, saying "Progress made, but I agree with Michel Barnier that wide divergences remain on some core issues. We continue to work to find solutions that fully respect UK sovereignty."
The next key Brexit date is being touted as the 19th November, when leaders will meet at the next EU Summit. Talks are set to continue in the meantime, and it is likely we will see plenty of GBPEUR volatility over the course of the next few weeks.
The European Commission highlighted their concerns over the progress of negotiations yesterday, after they released their latest economic forecasts for the euro area and based their projections on no Brexit deal being agreed by the end of 2020. With the uncertainty owing to the current pandemic the commission have cut the euro area’s growth forecast for 2021 dramatically and this saw the euro weaken during yesterday’s trading.
The dollar weakened against EUR and GBP yesterday as the votes continue to be counted from Tuesday’s US election. At the time of writing, Joe Biden is currently leading the race against Donald Trump, with the count ongoing in 5 key states. The wait for the outcome is creating a great deal of uncertainty in the markets and it is still unclear as to when the results will be published.
Trump has been vocal over the past few days in questioning the legitimacy of the voting and last night claimed that there was a global conspiracy against him in a 17-minute televised address that many TV networks cut off.
In his speech, Trump claimed that he was a victim of 'big media, big money and big tech' coming together to commit 'historic election interference' and give Joe Biden the Presidency, but he gave no evidence to support the claims.
The race still hangs in the balance, with Biden currently winning 253 electoral college votes and needing 270 achieve the minimum needed to win. Trump on the other hand has 214. If Biden can secure a win in Pennsylvania, or two of the other four remaining states, he would have enough to confirm his position as President Elect, providing there is no legal challenge from Trump. As the votes continue to be counted and the result still sits on a knife edge, we look set for another volatile day for USD and therefore it is worth keeping in touch with your account manager here to stay up to speed with the latest developments.
Whilst the votes were being counted yesterday the US Federl Reserve (Fed) released their latest monetary policy decision in which they have kept their current stimulus package on hold and left interest rates unchanged. There was an expectation that a further injection of stimulus may have been announced to help boost economic recovery, but that was not the case, and this has seen the dollar weaken. The Fed did however confirm that they will do whatever it takes in the coming months to get the economy back on track and therefore there’s a chance they will follow in the footsteps of the BoE in the coming weeks to inject further stimulus measures. The Fed will be closely monitoring jobs data released for October later today and the outcome of the US election ahead of their next monetary policy decision.
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