Since the start of lock down and having seen a dramatic reduction in the value of the pound, but what is its' likely trajectory, asks Tim Sheehan of South West Foreign Exchange Limited.
General
What's in store for the Great British Pound?
Posted on 1st October, 2020 in General
Since the start of lockdown, where we witnessed a dramatic reduction in the value of the pound, reaching lows against the dollar and euro of 1.1492 and 1.0511 respectively, we have predictably seen a welcome bounce back to highs of 1.2640 and 1.1525 - but no more.
This modest recovery has obstinately remained in a 2-4 percent band, very much a direct reflection of the severity of COVID-19 in the United Kingdom and its' impact on the UK economy.
We now seem to be entering the phase of whichever country or economy recovers from the effects of the virus the quickest and, as a result, get their economies up and running again will have the advantage of their currency strengthening.
The British Pound is now the worst-performing major currency of the past day, week and month according to data, as multiple pressures start to build on the UK currency in the form of trade negotiation uncertainty, Bank of England policy and the country's slovenly exit from lockdown.
In the past weeks we have seen the pound strengthen on the back of improvements in the stock market but this is not a given in the future as fresh fundamental drivers will take hold.
Some of these triggers came from the Bank of England suggest that more easing will be needed in due course and all options are under review to deliver this. From a currency market perspective, comments on interest rates are perhaps the more interesting as said cutting interest rates into negative territory "would potentially do more harm than good".
The fundamentals continue to focus on the UK’s lockdown-easing plans and the state of EU/UK Brexit transition talks. It has been stated that a hard Brexit in becoming increasing likely as as negotiations between Britain and the European Union have stalled.
The UK and EU have this week begun the penultimate round of negotiations aimed at securing a provisional agreement ahead of the July European Council meeting, at which it must be determined whether an extension be granted to extend trade negotiations.
All in all it is very difficult to predict where the value of the pound will be in the coming months as we have to contend with Brexit and well the already slowing down of the UK economy.