It’s been a tough few weeks for the pound against the euro. On the 5th of May mid-market exchange rates were trading at 1.1480 and at the time of writing this article, mid-market exchange rates have tumbled to 1.1165. The pound even hit the headlines in the Financial times this week, being quoted as ‘the worse performing currency in May’. As you would expect the Coronavirus is playing a big part in sterling weakness, however the latest Brexit developments are also weighing on the pound’s value.
Reports coming from the Brexit negotiations this week are is the UKs demands are not realistic according to the EU’s Michel Barnier, and he was not confident of a deal come the end of the year. However, Cabinet office Minister Michael Gove told the BBC and Sky news that the negotiations were going well, and he was confident of a deal. Yet, the EU want the UK to follow the EU rules after we leave.
It feels a little like déjà vu. 12 months ago the UK and EU were wrangling over a transition deal only to find success in the final hours, but the trade negotiations are arguably more important which is the real concern for clients that are purchasing euros with sterling. There are many problems that need overcoming however the access to fishing waters, seems to keep cropping up. The EU want to continue to fish in UK waters however the UK will not accept.
Leaders of the SNP, Lib Dems and Green party have all written to the EU expressing their want and need for an extension, however the letter that hasn’t been received is one from Prime Minister Boris Johnson. The Prime Minister has made it clear that even though we are in the middle of a pandemic and all focus hasn’t been on Brexit, the UK will not be seeking an extension and crashing out of the EU has started to become a reality once more. Last year forecasters were suggesting the GBPEUR currency pair could crash to parity on the back of a no deal Brexit.
It’s been a positive few days for the euro. Countries like Italy and Greece which heavily rely on tourism are looking to reopen for business this summer. Furthermore Germany and France both announced yesterday that a €500bn recovery fund is needed for the less fortunate countries, which seems to be a U turn as it was only a month ago that the wealthier countries such as Germany were showing little support for countries like Italy and Spain. There will always be the question of how the under performing countries will pay back the debt, however if the engine room of the bloc Germany is suggesting the stimulus is needed, it could be the case that the richer countries do help with the longer term debt repayment.
UK Unemployment Figures Released this Morning
This morning the UK released their latest unemployment numbers and as expected they did not make a good read. The office of National Statistics reported that 50,000 more people within the UK were unemployed and the claimant count rose by 865,500 to 2.1 million. There are further problems ahead for unemployment as the numbers released this morning only cover the first week of the lockdown. Therefore, the next month’s numbers are likely to be worse and could cause further problems for the pound.
Looking ahead tomorrows inflation data and Purchasing Manager’s Index surveys are next key releases to look out for. Following that, Retail sales and Net borrowing are set to be released Friday morning. As you would expect all data releases are set to decline due to the Coronavirus, however the extent to which the numbers decline will dictate the strength of the pound by the end of the week. For more information on these data releases feel free to get in touch by submitting your details below.