Yesterday was a mixed bag for sterling exchange rates, making a small loss against euro yet gains against a number of other major currencies including the USD, AUD, NZD and CAD.
It seems like the dollar has well and truly fallen out of fashion for investors at present, which we have covered previously in these reports and this is also having an impact on GBP/EUR too.
With EUR/USD being the most traded currency pairing in the world big shifts in the price of EUR/USD can often lead to and impact on the value of the euro against the pound and this may be why we have seen the euro make the gains it has at the start of this week.
EUR/USD has not only been moving in favour of the euro, but yesterday the pairing virtually hit a 2-year high which also represents a 3% loss for the dollar against the single currency in the past week.
The growing concerns over Covid-19 and how the pandemic continues to hit the U.S extremely hard coupled with the political uncertainty that an election brings are both having a negative impact on the value of the dollar, with GBP/USD also hitting a 5-month high yesterday and an interbank trading price above 1.29 at one stage of the trading day.
Those that have foreign currency to purchase with the pound may wish to consider the various options available to them as with multiple signs of a second wave of coronavirus the market could be in for another rollercoaster ride similar to what we saw back in March.
When the Pandemic really started to take control and it became more and more obvious that this wouldn’t just be a simple flu, money poured out of the U.K stock markets and share prices tumbled. With a vast sum of money invested in the U.K stock markets being overseas money, a considerable amount of that money went back overseas, lowering demand for sterling therefore lowering its value.
In Mid-March GBP/EUR actually dropped into the 1.05s and GBP/USD hit the lowest level since 1985 and dropped into the 1.14s and with this being the only historic move we can look back over with Covid-19 it does need to be taken into account that should a second wave really get its claws in then Sterling may take a tumble again.
Where the market heads next is an almost impossible conundrum to crack as it stands, with a global pandemic, Brexit and economies all around the world finding life tough we really do have an interesting second half of 2020 ahead for sure.
On the Brexit front we still do not appear to be any closer to reaching an agreement or even coming close to it, which does seem to be holding back sterling exchange rates as a whole, possibly due to the fact that investors and speculators are steering clear of the pound until they can see a bit further into what the future plans may be.
If you treated the U.K as a business, it would be hard to get investors to buy into that business currently as we do not know what the business plan is going to be for next year, until Brexit is sorted and even then we may only know the bare bones of a plan. This has added to the lack of demand for sterling and therefore the struggle for the pound to gain any significant value, all eyes will be on the next round of talks and any signs of compromise could give sterling exchange rates a lift.
The week is fairly thin on the ground for economic data but do be cautious of month end flows, with Friday being the last day of the trading month you can see month end flows, where exchange rates can move significantly without prior warning as funds and corporations look to net off their positions before the end of a trading month. With such a large move on EUR/USD over the past week these flows could lead to quite a volatile end to the week, which way is impossible to say so if you do have an exchange to carry out I would suggest letting us know here at FCD so that we can keep you abreast of any opportunities that may arise or adverse market movements against you.
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