The Week Ahead for Sterling Exchange Rates

Following on from what could only be described as a quiet week of trading on the currency markets last week, with Sterling exchange rates being fairly flat across the board, lets see what is coming out this week that may move the pound.

Brexit talks are due to resume again this week, this is after a two week break from the negotiations between the UK and the EU. Throughout the whole of July both sides tried to thrash out a deal, however unfortunately as of yet a compromise or landing zone has not been forthcoming.

It does feel however that although there are no clear or official signs of a deal getting closer, in my view I feel that we may have an announcement on a deal coming in the next few weeks.

Quite frankly the clock is ticking and I still feel that a no deal Brexit is close to the bottom of the list for both sides due to the initial economic impact it may have, which could be magnified with a pandemic currently attacking the globe.

Chief Brexit negotiator David Frost is also due to move into a new role at the start of September, which is a strange move but also may be a sign that the UK want to get something done, even if it is a bare bones deal that can be worked on over time. Mr Frost has said that he will stay on until this is concluded but I can’t imagine he would want the transition to drag on for a long time so to me there is a hint here that they expect something to happen in the next month or so.

Any positive news on a Brexit deal has historically strengthened the pound and any negative news of heightened chance of a no deal Brexit has generally weakened Sterling exchange rates, so keep an eye on any developments from the talks this week.

Positive House Price News – Unless You’re in London

The UK housing market has witnessed a surge in activity in recent weeks as lockdown has lifted and a stamp duty tax break caused unseasonal record highs in seven regions across the UK.

Despite the price rises around the country, a drop in London actually pulled the national average down by 0.2% according to Rightmove.

It does seem like there is a shift in culture within the UK since lockdown, and with many large companies not expecting their workers to return to the office anytime soon, and to continue working remotely.

With this change there does appear to be a large movement out of London and other major cities to nicer surroundings now that they do not have the daily commute to the city.

COVID-19 Still Showing Signs of a Second Wave in Europe

Cases of coronavirus are rising once again in many areas around Europe, with the U.K making a move to add France to the 14 day quarantine list as of 4am Saturday.

Cases in France has tipped above 2,800 for the past three days in a row, along with news that cases are still high in Spain, Italy and Germany.

For those that had now been watching the currency markets when the pandemic first arrived on the scene and it became apparent that this was going to be a huge problem it was actually Sterling exchange rates that dropped off significantly, hitting interbank rates of 1.14 against the dollar and into the 1.054s against the euro.

This was mainly due to a big sell off in the U.K stock market and with that a lot of foreign investment heading back overseas, dropping demand in the pound and therefore lowering its value. Should history repeat itself and a real second wave start to grip Europe and the UK we may see a similar pattern.

PMI Data at the End of the Week

With another fairly quiet week ahead of core economic data, the one larger piece of data comes on Friday, where we have PMI data from the U.S, Eurozone and the U.K.

Purchasing Managers Index (PMI) is a strong indicator of economic performance within the manufacturing sectors and will give a good indication into the sectors performance.

It is no secret that economic data around the globe has been fairly poor of late but has also had less impact on the markets than it usually would, most likely because investors and speculators are already expecting the bad news.

Should any one of these releases shine brighter than the other two though it could lead to a good end to the week for USD, EUR or GBP so this could be a bunch of releases to keep an eye on for the last day of the trading week.

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