A scary headline I know… But that is exactly where we are right now.
Brexit has been our main headline so far in September, which, for a lack of a better word, absolutely decimated any gains that we saw through the Summer for Sterling. We are now waiting for any further news from the UK and EU on this, and as I mentioned before, things will only get serious once Johnson, Merkel & Macron are round the table, until then, we will have the same headlines of zero progress.
This week, things changed, coronavirus cases have begun to grow again in the UK at a rapid rate, talks of lack of testing have arisen in the media, and also the Government seems to be putting out feelers on a second lockdown.
In my mind, only regional lockdowns seemed possible at this point, however, If the Government is looking to do a second National lockdown, it has to be soon- this way, the furlough scheme is still there, and can also be done on half term where children will be at home. As each day goes by this seems more likely- we better start stocking up on toilet roll!
So this, for me, is a big risk for Sterling at the moment, which as I mentioned seems more likely as each day passes, and as we saw last time, a lockdown would weaken Sterling- especially while other countries are still operating.
Onto something positive, the EU Commission’s President, Ursula Von der Leyen put out a statement on Friday that she is “convinced” that a Brexit trade deal can be done, which was some much-needed optimism for the Pound to Dollar exchange rate that took us to a brief trip back up to 1.30.
As I see it, there a few major risks for Sterling coming up which are the following;
– Bank of England discussing negative interest rates
– Brexit negotiations still 50/50 on a deal or no deal
– Potential second wave of Covid-19 to cause either further restrictions or a lockdown.
– Furlough scheme ending in October.
With all that said, this doesn’t necessarily mean that the Pound exchange rates move lower, in a risk-on market, investors may find that the risk to return ratio is better for Sterling pairs which could see exchange rates move up, however, if the points above spook the market, then we could see Sterling fall.
Unfortunately, a pretty annoying week ahead, but if you have a particular situation you need working on, please don’t hesitate to get in contact.