Pound to Euro: Further Lockdown Measures and Brexit Negotiations

Will the U.K head into another lockdown?

This morning at 11am professor Chris Witty is due to address the nation in what is expected to be a stark warning about the months ahead, and to summarise the position that we are currently in with the covid-19 pandemic.

Expectations are that later this week Prime Minister Boris Johnson is also due to follow up with new restrictions and plans for taking on the pandemic and attempting to stem the growing number of cases throughout the U.K at present.

As you can see on the graph above the current seven day average number of cases is spiking at an alarming rate and as we head into a colder period there are fears that the virus could grip the nation once again.

There have been a number of suggestions as to which way the Government may head with this and it does seem like it may be difficult to avoid another lockdown, albeit a temporary ‘circuit breaker’ for 2 weeks or something more full on.

A move for further lockdowns may lead to Sterling weakness as it would hold back the economic recovers and be yet another bump in the road for Chancellor Rishi Sunak to have to try and sort out.

Back in March when the pandemic showed signs that it may clearly grip the world Sterling exchange rates took a bashing, with GBP/EUR interbank exchange rates dropping into the 1.05s and GBP/USD interbank exchange rates coming down into the 1.14s.

There is no suggestion a lighter lockdown would have the same impact but clearly it would hinder the economic recovery and put the U.K back a few steps so It would be hard to see another setback not to negatively impact the pound.

Will a Brexit Trade Deal be Agreed?

The other big focal point for investors and sterling exchange rates is what will happen in the negotiations between the U.K and EU in the coming weeks and whether or not they will lead to a trade deal being agreed before Boris Johnson’s line in the sand which is October 15th.

Two weeks ago Boris Johnson suggested that if no deal is agreed by this date then he will be happy for the U.K to walk away without a deal, and these comments alone led to Sterling dropping considerably over the course of that trading week.

The reason they dropped is that his comments increased the likelihood of a no deal Brexit. A no deal Brexit, or even the heightened chance of it happening has led to Sterling losing value over the past few years, so the closer we get to this date without a deal being agreed the more you may see Sterling exchange rates stutter.

On the other hand should a deal look to be progressing, or even the makings of a bare bones agreement just to avoid a cliff edge Brexit then it is likely that Sterling exchange rates may improve against all major currencies.

Needless to say, we are in for a volatile 4 weeks with many factors that could impact the value of the pound in the next few weeks.

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