Pound loses luster before the weekend, but stays near the top of the recent range against the euro and other major currencies

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– GBP sweeter Friday
– But stay close to the top of the range in the short term

– One of the best performing currencies of the past week
– The euro, besieged by the euro zone, quarrels over coronabonds
– The USD remains the best-performing currency of last month

Pound sterling

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EUR – GBP / EUR spot rate at the time of writing: 1.1419
– Bank transfer rate (indicative): 1.1120-1.1200
– FX specialist prices (indicative): 1.1300-1.1320 >> More information

EUR – GBP / USD spot rate at the time of writing: 1.2381
– Bank transfer rate (indicative): 1.2050-1.2140
– FX specialist rate (indicative): 1.2230-1.2270 >> More information

On Friday, the pound was returned part of its advances against a multitude of different currencies, the downward movement removing some of the luster from what has been a relatively strong week for the British currency.

The British pound lost its value against the dollar, the euro and high-risk currencies like the yen and the Swiss franc.

We note that global stock markets are trading in a softer tone on Friday, suggesting that an element of investor sentiment may impact the pound.

Market players remain focused on the economic picture of the coronavirus pandemic, with a lack of certainty about the extent of the collapse, which turns out to be a key factor in staying on the defensive.

“The thorny data is thick and fast this week, with a slew of low-service PMI surveys across Europe, led by a shocking reading of 17.4 in Italy. This Italian represents the fastest decline in services in history, with the draconian lockdown “seen in an effort to curb the spread of the virus largely shutting down the industry,” said Joshua Mahony, senior market analyst at IG.

The pound-euro exchange rate is listed at 1.1364, down 0.50% on the opening level of the day while the pound-dollar exchange rate is listed at 1.2280, down 0, 90% on the opening level of the day.

Despite the daily declines, the pound remains relatively well supported in a short-term perspective, thanks to a strong recovery which has been in place since mid-March. After falling sharply by more than 10% against the euro, the dollar, the yen and the Swiss franc in mid-March, the British currency finally bottomed out on March 19 and has since experienced a solid recovery .

The big pound shift seems to have taken place when the US Federal Reserve stepped forward and announced that it would inject billions of dollars into the global economy on March 19.

Recovery of the pound against the dollar and the euro

Above: The pound has gained against the dollar and the euro since March 19.

The coronavirus-inspired market collapse had created a surge in demand for cash as traders pulled out of bets and businesses needed to tighten their belts before an impending global recession, which led them to place a significant premium on cash.

Because the UK has such a large financial services sector, the country did experience a mega money withdrawal, which naturally hammered the pound.

“We continue to see upside potential for the pound. Despite its relative liquidity, the pound was one of the G10 currencies most severely punished by the cut in dollar funding, possibly due to the UK’s large financial sector. As this problem appears to have been resolved, we expect the pound to regain lost ground by the middle of the year. The Bank of England decided today to leave unchanged the measures it had announced the previous weeks, which was interpreted positively by the investors in sterling, “said Gaétan Peroux, strategist at UBS.

The Fed’s actions to provide liquidity finally let the steamer out of the pressure cooker which was the global financial system flow out, and the UK naturally benefited from this loosening pressure due to its function as the de facto capital of finance. “The pound was the currency hardest hit by the lack of liquidity and concerns over access to the dollar in early March, down about 10% in value. But it was also seen as the strongest rebound, as the Fed has taken steps to tackle this problem, “said Kit Juckes, FX strategy manager at Societe Generale.

“Regarding the Federal Reserve, if a foreign bank in a foreign country lends money to a foreign company, that is not their problem, even if the transaction was in dollars. Its role is not to be the world’s central bank, or for “Dollar-land”. But if this position was more or less tenable in the past, it is no longer so today. The dollar’s ​​share in the global financial markets is not declining, even though the United States’s share of the world economy is, “Juckes adds.

The resumption of the British pound found new impetus on Tuesday when the Fed announced that it would alleviate further pressure by announcing that it would temporarily allow other central banks to exchange their holdings of US Treasury securities for dollar loans day by day.

As long as the Fed is able to provide liquidity, we expect the upward trend in the pound sterling to continue.

Best book

Above: The Pound is one of the top performers of the past week.

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The decreasing fortunes of the euro contribute to GBP / EUR power

Advances in pounds sterling have of course the shrinking wealth of other currencies to thank, especially the euro.

The exchange rate for the pound sterling to the euro has resumed 1.14 in the past 24 hours thanks to a combination of the strength of the pound sterling and the fall in demand for euros due to the chronic inability of euro area countries to unite around a common budget response to the economic devastation caused by the coronavirus crisis.

A joint budgetary response would be the most effective response to a dramatic collapse in economic activity in the euro area, leading many European countries, including France and Italy, to promote the idea of ​​creating a “coronabond” in order obtain new funding that flows to the region’s weakest and hardest-hit economies.

A coronabond would however mean the pooling of risks by all the states of the euro zone, leading certain states of Northern Europe, notably Germany, the Netherlands and Austria, to resist the idea for fear to finance the program over time.

“We all know that the strength of a relationship can be put to the test in times of crisis. This is currently very evident in the EU and the euro is not taking it well. There is no agreement on how to support member countries most affected by the virus, “said Thu Lan Nguyen, FX Strategist at Commerzbank in Frankfurt.

EU leaders are, however, still determined to find a unified fiscal solution to the crisis and we believe that any progress deemed credible by the markets could trigger a recovery of the euro.

“In Europe, leaders are discussing ways to support the most affected European countries, such as Italy and Spain, before the Eurogroup meeting. Proposals range from joint debt issues like Corona bonds to the creation of an EU coronavirus support fund. Watch out for signals from European leaders, especially German and French leaders, ”says Jens Peter Sørensen, chief analyst at Danske Bank.

King dollar in control

The pound-to-dollar exchange rate has remained remarkably stable given the growing strength of the broader US dollar that we have seen since the start of the new month, which in itself is evidence of the improvement in the pound’s position sterling.

A deterioration in the global economic outlook linked to ongoing blockages to prevent the spread of the coronavirus is considered to be a factor likely to maintain demand for the dollar.

“Soaring initial unemployment claims in the United States at 6.6 million hours yesterday suggests that the United States will soon enter a deep recession if it is not already in recession. The deterioration of the US and global economy will support the US dollar, “said Kim Mundy, Currency Strategist at Commonwealth Bank of Australia.

New welfare claims in the United States increased at a record pace last week, according to Department of Labor figures, putting the world’s largest economy on the path to double-digit unemployment. and huge declines in GDP.

6.64 million Americans made new claims for social benefits during the week last Friday, up from the previous revised upward record of 3.28 million the previous week and many state authorities quoted the coronavirus and the impact of efforts to contain it as being behind the increase.

” [This] has the firm claim of being literally the worst economic data release ever, in terms of importance to the US economy and global markets, “said Ranko Berich, head of market analysis at Monex Europe.

The data has contributed to further gains in the dollar, which is in fact now the best performing main currency of the past month:

Performance of the dollar last month

Above: performance in USD last month

“The US dollar is a counter-cyclical currency, it rises when the global outlook deteriorates,” says Mundy.

Prospects for the global financial markets and the global economy remain negative, with coronavirus deaths continuing to climb, and there is no indication that the unprecedented locks in Western economies are about to end.

We believe that the most significant “game change” at this time would be the announcement of a successful vaccine trial or other form of medical solution that would significantly reduce death rates. It may well lower the dollar.

By all accounts, however, such a result is still far off and therefore the dollar still has room, but beware of the element of surprise.

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Banner Expatriate pension changes: how Brexit will affect your pension in the UK if you live in the EU. Capital Rock Wealth has developed a comprehensive guide to help you navigate the uncertainty ahead. Learn more here.

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