Near-term outlook negative for the Pound

Hi everyone,

 

It was a week to forget for Sterling after suffering a 1-month low against a basket of currencies. There are a number of investment banks downgrading the Pound near-term (weeks) after the poor performance on the back of negative investor sentiment around Covid cases and a global economic slowdown. 

 

Traders are in favour of the EUR after a second successive week of gains against GBP. There is no doubt some profit taking has been had at the expense of the high-flying £, but with uncertainty surrounding the above areas at the moment it's understandable. The EU has also showed positive signs of recovery out of lockdown recently, which looks likely to continue near-term. Rates continued to fall over the weekend and whilst they have recovered some today, it doesn't look like this week will be the one for a bounce-back.

 

So far, £-€ rates are only down 0.5% from the beginning of the month. This is a key stat considering historically August tends to be a poor month for GBP and with the overwhelming majority of analysts expecting a non-event of a month. The kicker is of course, rates were 1.5% higher just 10-days ago.. The $ continues to hit multi-month highs across the board being the king of the safe haven currencies and leading the way out of the pandemic in the G10. £-$ rates have fallen 2% since the beginning of the month and there may be more to go yet. 

 

There is literally no data out this week for the UK, so the market will be focusing elsewhere for volatility with £ licking its wounds. The Jackson Hole summit could go either way for the $ as well as confidence figures for the €. GDP data from both the EU & US should be positive, so there is a slight risk of more decline for £ this week, unless the Covid sentiment changes. 

 
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