Sterling had a relatively strong month in July, particularly against the dollar, which suffered due to rising infection rates and the re-closure of businesses in the US.
Despite this, it’s impossible to predict where the pound will move in the coming days, weeks and months. But we can highlight some events happening throughout August which could impact the pound.
Brexit is the main driver for the pound at the moment, so any positive or negative rhetoric surrounding negotiations is likely to impact sterling. Whilst news is fairly sparse at the moment, talks are expected to start again on the 17th of August. There has been some optimism recently that the two sides will be able to agree on a deal. However, any speculation of a possible ‘hard’ Brexit or a no deal scenario could put pressure on sterling.
The coronavirus situation in the UK remains a factor that could impact the pound. If infection and death rates worsen, the pound could weaken. ‘Local lockdowns’ were put into place in some parts of the UK throughout July. If this continues to take place and fears of a second wave increase, then sterling could be impacted. As well as this, a review is taking place over how coronavirus deaths are counted in England. If the method changes and the numbers increase, then this could also have an effect on sterling.
The global markets
The pound is often prone to moving with the global markets – so if the markets drop, the pound could drop with them. There are many factors that could influence the markets over the coming weeks, including news of development on the coronavirus vaccine race, US-China tensions, and stock exchange volatility.
Bank of England meeting
The BoE will hold their monetary policy meeting on the 6th of August. Whilst it’s expected that interest rates will be kept on hold, any changes to their quantitative easing programme and comments about the rate of economic recovery in the UK could have an impact on the pound. Equally, any suggestion that rates could be cut in the near future could have an effect on sterling.
Since the time of writing, the Bank of England released a more positive statement than expected. By unanimous vote, the Bank kept interest rates on hold and left its quantitative easing programme unchanged. It expects the economy to decline by 9.5% in 2020, which is better than the forecasted 14% but still the biggest annual decline in 100 years.
The preliminary estimate of how the UK economy has fared over the last quarter will be released on the 10th of August. If the figure comes in worse than expected, then we could see the pound fall. Britain’s economy shrank by 2.2% in the first quarter of 2020. It will be interesting to see if the second quarter has benefited from businesses re-opening.
Since the time of writing the data has been released – the UK economy fell into recession as expected. However, there was evidence to show a small recovery in June.
Your next move?
The outcomes of the above events are unpredictable, so it’s impossible to predict how the pound will fare. As complex as the exchange markets are, however, there are simple ways for property buyers to purchase their dream home abroad safely – without the risk of losing money through no fault of your own.
For most of our clients, the solution is a forward contract. Essentially, it means that you lock in the same exchange rate for up to twelve months, so any drop in the rates does not affect you.