Pound to Euro rates had their worst week since the big pandemic sell-off in March- closing on Friday evening at lows of 1.1180, which was an over 2% drop. Against other currencies, Sterling fell further, with Pound to Dollar exchange rates falling over 4% to 1.20.
The reason for these moves over the last week can be put down to a few events- the first catalyst was the Bank of England doubling down on wanting to do more quantitative easing from next month (Printing more money understandably devalues a currency), talk of negative interest rates in both the UK & US and of course, our favourite subject- Brexit.
Brexit negotiators claimed that talks were not going well and that it is unlikely that they will reach their deadline- now, we must keep in mind that this is a negotiation, so as we are used to, they will play up and play down events to scare the other side. Personally, I am still confused why these talks are of high importance through a pandemic, but I guess business must go on no matter what.
Sterling was actually doing pretty well through April/May- in fact, you could see it overperformed somewhat- and now, it looks like pressure is building on Sterling while nobody seems happy with the UK Governments lockdown response and concerns of a second wave in the UK, and the fact that trade deal negotiations are not going well with the EU.
The reality is, the Pound will be hinging on whether the December deadline is extended- if there is an extension- traders seem to believe Sterling will sell off- if there isn’t one- we could be back at 1.20 against the Euro very quickly. In this pandemic, I didn’t view an extension as a bad thing, but it seems that the above viewpoint is prevailing, so for now, let’s go with it until we see other evidence.
Over the next 3 weeks, it is possible that we see the Pound weaken further- however, it will be very sensitive to headlines, so be careful if you are trading it- lows of 1.05 against the Euro are expected and 1.15 against the U.S Dollar- do not take these numbers for Gospel as they are just forecasts, and in current market conditions, one headline can break down and change a forecast within seconds.