We had a relatively mixed week last week after Sterling pairs unexpectedly rose through the beginning of the week- there are a number of reasons why this could have been- the first and most important is that we are currently in a “risk-on” market- which effectively means that investors are comfortable trading riskier currencies such as Sterling to gain higher returns on the market. The second reason for the strength was that Andy Haldane mentioned he feels that the UK economic recovery is happening better than expected which put more confidence into Sterling. Last, of all, the UK was preparing for “Super Saturday” where many businesses were allowed to reopen and consumers were encouraged to spend, which, by the looks of the news, definitely happened and will help boost economic recovery (Though we are yet to see if this brings on more Covid-19 cases).
As we approached the end of the week, we started to see the strength dwindle a little, firstly as the U,S was closed on Friday, and secondly, because Brexit talks were halted on Thursday (one day early)- with Michel Barnier releasing comments indicating that there was no real progress made.
One thing that you will all be hearing in the news a lot is that Boris Johnson is happy with achieving an “Australian style” trade deal- just so we are clear with what this means, Australia doesn’t really have a deal with the EU, so him saying this is actually an indication that he is happy to go with a no-deal scenario, it is just that the language sounds more positive as it suggests there is some sort of deal in place.
It seems that both the EU & The UK are willing to try and hash out a deal by Autumn, and even Angela Merkel has indicated her willingness to make this happen, so, for now, the market is still relatively confident a deal with emerging out of these negotiations, because that is all that really matters to the market- whether a deal will happen or not- the broad strokes are of no interest to investors- if we get a deal, Sterling rises, if we don’t, Sterling falls.
As far as economic data is concerned, there is not really any noteworthy releases for GBP this week, we do have the RBA interest rate decision this week which could be a market mover for those of you trading the Australian Dollar and we also have European Retail Sales data, however, I am unsure how much effect this would have on the markets given the fact that European economies have been on lockdown, so not much attention really can be paid to these releases at the moment.
The main thing I will be watching is Chancellor Rishi Sunaks economic statement this week- PM Boris Johnson’s speech last week wasn’t well-received as it was a lot of words with no real plan, so many of us are waiting for Mr Sunak to shed some light on the actual economic plan- how furlough ending later this year is going to work, and how they will get consumers to spend when there are still dangers of more lockdowns and a potential second wave of coronavirus.
Currently, my long term view remains that the UK & EU will be able to strike up a free trade agreement, which will assist Sterling into 2021- however, due to the pandemic, we will not see those Pre Brexit exchange rates that we have longed for- but I am of the belief that we should see GBPUSD exchange rates above 1.30 by the time the year is out (If we are just looking at Brexit talks)- unfortunately the economy is in a very uncertain place, but as this is the same for every country, I do not see Sterling taking the brunt of it more than others. GBPEUR I am looking for us to be closer to 1,20 by the time we have struck a deal with the EU, then it does come down to the broad strokes and how things will work, but as the Euro is expected to find some strength over the next year or so, GBPEUR gains will be limited.