Pound to Euro – GBP Rises on Rishi Sunak’s Furlough Part 2

One of the concerns in recent weeks over the British economy has been the end of the furlough scheme, with the financial markets apprehensive about the employment picture once the scheme ends in October.

Rishi Sunak helped the pound to euro find some support yesterday by providing some clarity about what happens next, with an announcement that from the end of October the government would subsidise employees working at least 1/3 of their usual hours.

To avoid the government backing jobs which are no longer viable, the British Chancellor has provided a safety net to allow support to continue but in a more targeted manner. The pound to euro exchange rate rose slightly hitting,1.0968 at its peak yesterday, before settling back and opening today in the 1.0924-1.0938 interbank range so far in early morning trading today.

Against the US dollar, the pound also found some support but there is a more general picture of US dollar strength lately which has seen the rate come down from a high of near 1.35 to the current 1.27’s, with the price currently at 1.2764 at the time of writing.

What Next for the Pound and Brexit?

Overall, the pound has been losing ground in the last few weeks against many currencies as concerns over Coronavirus intensify, plus fears of no-deal Brexit remain. Some of the current forecasts are still giving weight to the potential for no-deal exit, which might well weigh heavily on sterling should it happen.

The coming weeks look crucial as the market is forced to take greater stock of the end of year deadline on Brexit, where there is growing concern over the UK’s future trading relations with the EU.

October is a key point in all of this, with the 15th and 16th seeing the latest EU Summit where investors could learn of more detailed news regarding the plans and the outlook ahead. There has in recent weeks been some continued indications that there is the will to do a deal from the EU side, with both Michel Barnier, the EU’s chief negotiator and also Ursula Von Der Leyen, the European Commission President indicating they believe a deal is possible.

With the end of December deadline fast approaching and there being a continued focus on what will happen, the potential for greater moves on the pound seems likely, as the waiting is over and we learn of the realities of the UK’s post member EU relationship.

What Are Some of the Rate Predictions Ahead?

We are seeing some predictions over what kind of rates we could be looking at in the coming weeks which I will explore and outline here. The predictions largely depend on the long term relationship of the UK and the EU with a tendency that the closer to no-deal we are, the weaker the pound, whilst signs of a deal are seen as GBP positive.

Regarding the pound to Euro, BNP Paribas has been quoted as seeing 1.15 if a deal can be reached, which is their central forecast. Goldman Sachs were last week quoted as seeing a no-deal Brexit as being about a 40-45% likelihood.

On the US dollar the prospect of a deal is seen by BMP Paribas as potentially taking the rate to 1.41, whilst it has on previous occasions be noted that a no-deal could see GBPUSD levels down at 1.10.

When we consider that GBPEUR has been as low 1.0533 in March, and on the same day GBPUSD was 1.1435, to move a few percent lower than this cannot be ruled out and provides some interesting ranges for us to consider as we approach the next pieces of news.

The reaction to the outlook on Brexit could have a great bearing on the rate, and this will provide some key developments for us to be tracking in the coming weeks, which will provide opportunity and also concern for clients looking to transact the pound.

The Coronavirus has made the currency markets even more unpredictable and volatile in many respects, and we can help share with you the latest news and provide tools to help provide you make an informed decision and strategy on your transfer.

I would like to assure all our readers we remain very much operational to assist with any international money transfers throughout this time and have a number of tools available to help you mitigate your exposure to the quickly changing currency markets. If you would like to discuss these factors in more detail, please do contact me directly using the form below.

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