What a week… After a good little spell for Sterling through early June, we finally started to see GBP exchange rates crumble under pressure. In one week, we have seen GBPUSD exchange rates drop from 1.28 down to 1.2350. To put this in context, a purchase of 100k USD is now costing £2500 more than it did a week ago! Pound to Euro rates have also fallen, but it hasn’t been as dramatic- the exchange rate has fallen from 1.12 back down to the 1.10 area (Just under 2%).

The final blow to Sterling last week was the BoE expanding its bond-buying programme by £100 Billion in order to keep government borrowing costs down, but also announced the pace will slow down by the end of 2020. The market did not like this announcement as traders are still betting on negative interest rates in the UK this year and banking on a recession.

Moving forward, traders will be watching Brexit negotiations, UK market data and Central bank announcements, however, it seems the risk is now off and people will be staying away from GBP for the time being.

Outside of the UK, it seems that there has been a rise in infections globally of Covid-19 which indicates we are not out of the woods yet, and though economies are re-opening, it will be done with extreme caution. UK travellers will also be able to fly to Spain, France, Greece & Portugal shortly (Which I am sure is music to many of your ears)- which should help the tourism aspect of these economies, but at the moment it is unclear how many people will feel confident enough to travel at this point.

So, what are we expecting Sterling exchange rates to do next? I’ll be honest, I am rather pessimistic at this point (sorry!). With GBPUSD at 1.23, my next target is 1.21- then 1.20- and maybe sub 1.20 if we are very unlucky. We have seen that when the markets get nervous, they flood into the U.S Dollar. GBPEUR exchange rates I can see falling below 1.10 into the 1.08 territory if things worsen, then below that is definitely on the cards, but we would need some bad Brexit news to get back there.

For now, I would say it’s prudent to remain vigilant in the market, don’t get greedy when it rises and take profits off the table, Sterling has become a very risky currency over the past couple of years and that is unlikely to change. For those trading EURUSD, we have now fallen back into the 1.11 area, it will be interesting to see if this holds, I do see scope to go back to 1.14-1.15 soon but we will need supporting data from EU economies for this to happen.

As ever, please don’t hesitate to contact me for further information.