We have seen volatility this week on euro to pound exchange rates. On Tuesday Andy Haldane of the Bank of England (BoE) stated that the UK was a long way from negative interest rates, there had been rumours circulating there could be a rate cut into negative territory as early as June. This seemed to appease investors concerns and we saw a small spike for Sterling. There was another catalyst for the pounds gains when news broke that allowances may be made in regards to fisheries in Brexit negotiations.
And yet the following day all the positive news was quashed. The BoE then made statement that they would take all available monetary policy measures if necessary to combat the economic problems created from the Corona pandemic. We also then heard that there was to be no compromise on fisheries and it seems all the gains made by sterling the day before had evaporated.
There was also some good news for the Euro this week with a further €800bln added to combat the economic problems caused from the pandemic in the bloc. This had been a huge stumbling block with the Netherlands and Germany refusing to take on a collective debt. It had created inner fighting within Brussels and it is good news all parties have come to an agreement. Italy and Spain were in desperate need of assistance.
The key market mover on GBPEUR other than the COVID-19 Pandemic, is Brexit. Boris Johnson now has until the end of June to get a deal done in principal. On many occasions the PM has stated there will be no extension, it seems he is trying to force a deal through. It is a dangerous game considering there is such little time remaining to get a deal over the line and we are in the midst of a pandemic.
The two sides are still a long way from getting a deal done and there appears to be little give from either side. Barnier said recently they were at a point of complete stalemate.
It looks at present as though the possibility of a no deal scenario is a real one and while this is still a possibility the pound will remain vulnerable. A no deal is an investor’s worst fear and if Boris sticks to his current stance we could see a major fall in the pound’s value. Let us not forget Teresa May had several years to get a deal over the line without success. It maybe the case that Boris has a similar fate with Brussels refusing to budge on key issues.
Commerz bank are predicting GBP/EUR could get as low as 1.02.
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