It was a volatile 6 month pound to euro exchange rate. Before the countries started closing in March, the pound performed well with the GBPEUR trading near 1.20. However, due to the UK's trading habits, the pound has come under severe pressure due to the pandemic and the mean exchange rate for the GBPEUR was only 1.06. At the time of this writing, we've seen an improvement over 1.11.
UK employment weighs in on the pound
This morning the UK released its latest employment figures and it was no surprise that employment fell significantly by 220,000, according to the National Statistics Office. The pandemic has put great pressure on companies to keep their employees as large sections of the economy shut down. Now that the government's vacation program comes to an end, it will be interesting to see if, and by how much, employment continues to fall. If there is a sharp rise in the coming months, I expect the pound to depreciate further against the euro.
Positive news from the Bank of England
On a more positive note, the Bank of England (BoE) released its latest rate decision last week and rates were held at 0.1%. However, the central bank announced that they do not believe the economy will be as badly hit as initially thought, but they believe the UK will take longer to recover. That news last week gave the pound a much-needed boost against the euro.
Brexit negotiations continue to weigh on the pound
In the background, negotiations between the UK and the EU continue to bubble and try to reach a trade deal. EU negotiator Michel Barnier told the press late last month that an agreement was unlikely due to the UK's stance on fishing rights and competition rules after Brexit. During the next negotiations for the next week, clients trading this currency pair will need to watch closely how events play out.
On a more positive note, UK negotiator David Frost is optimistic that a trade deal could be reached in September. He said last month that the EU had taken a "pragmatic approach" which was good news. In other news earlier this week, the UK announced that it was about to finalize a trade deal with Japan and that could be agreed within the next 4 weeks. If countries lined up for a trade deal with the UK, it could strengthen Britain's bargaining power and strengthen the pound in the weeks and months to come.
UK growth numbers at the end of the week
Tomorrow the UK will publish its second quarter growth figures. With the UK locked for much of the second quarter, this could put the pound under heavy pressure. The number is projected to drop to -20.2, which is the biggest drop since records began for the quarter. However, the markets would have priced that number into the market. If the number turns out a little better, this release may not put further pressure on the pound.
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