Sterling makes significant gains on Euro over the last few days

Sterling has made significant gains over the Euro over the last few days recovering from the low of 1.05 with GBP/EUR currently sitting in in the 1.10s.

Be wary of thinking this Sterling rally will continue however, it could be the case that this is only a small spike. Sterling is not the destination of choice in times of global economic uncertainty. Investors will tend to stay clear due to the huge difference in the amount the UK imports as opposed to exports. We also still have a complete lack of clarity surrounding Brexit trade talks.

The right moves are being made however with Boris Johnson implementing a partial lockdown. We have also been made promises of monetary stimulus to provide further liquidity from the Bank of England (BOE). The BOE have also slashed rates to encourage low borrowing levels and there is also set to be money given to those who will be unable to work who are in the private sector.

These are unprecedented times and it is extremely difficult to draw upon anything in the past to predict what may happen next. The strength of Sterling will depend on how the Coronavirus situation pans out. We have witnessed Sterling weaken as the situation has escalated due to its lack of safe haven status.

The European Central Bank (ECB) have made promises of monetary stimulus as have many central banks around the world in an attempt to add liquidity and keep economies afloat.

If you are sitting on Euros although the market has moved against you, you are still in a very strong position considering it was less than a month ago GBP/EUR was as high 1.2072. Based on interbank levels on €200k to GBP at 1.2072, your return would be £165672. At current levels, 1.1020 £181488.

It depends on your gambling mentality, but it could be still considered a good time to move with GBP/EUR in the 1.10s. I would be wary of holding on for parity as some pessimists are hoping for.

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