The British Pound has fallen against its major peers as investors believe that the trade negotiations between the EU and UK will collapse and result in a no deal Brexit.

David Frost, the UK's chief negotiator, said to Parliament’s Brexit committee that the EU needed to change its position in order to reach an agreement that suits both sides. He told committee chairman Hilary Benn: “It’s their call.”

He also reminded MPs that the government did not intend to extend the transition period. As a result, the pound dropped, with the chances of a soft Brexit now looking increasingly slim. Frost said that Prime Minister Boris Johnson will be meeting in June with leaders in Brussels to try and push trade negotiations along.

Reiterating the rhetoric of hard Brexiters, Frost said that the EU was still grappling with the issue of Brexit: "The EU is still coming to terms with the fact that there's a large country in Europe that doesn't want to be part of the EU's structure in some way, or to work on EU norms, or to relate to the EU as the reference point of its activity.” However, as a Financial Times article put it, it is Brexiters who “still do not understand Europe,” arguing that the UK is “owed” privileged access and that Europeans are treating them “beastly.”

Pound to react to no-deal Brexit

Erik Norland, Executive Director and Senior Economist of CME Group, said that the pound fell against both the Euro and the US Dollar as the two sides reached an impasse regarding the “lack of progress on issues ranging from fishing rights to business-competition regulations." Norland highlighted the pound’s volatility in regards to Brexit:

"Since the referendum, GBP has tended to rally when it looked like a deal was close (+21% versus USD into early 2018 as then Prime Minister Theresa May held negotiations) and tended to sell off when Brexit appears to be headed towards the “no-deal” scenario (-16% when May’s deal was repeatedly defeated)."

He clarified that as we move into the next round of negotiations, GBP options markets are more tilted to the downside. He added: "Moreover, most of the recent spikes in both implied volatility and risk reversal have been motivated by concerns over the progress of Brexit negotiations. The one exception occurred during an incipient dollar-funding crisis in mid-March. After the U.S. Federal Reserve stepped in, that issued was resolved quickly.”

Brexit

As economists attest, the British currency’s volatility will continue and is expected to remain reactive to Brexit headlines, especially through June when the deadline for the UK and the EU to agree to extend the Brexit talks is due. The markets will react favourably to an extension, while the possibility of an impasse and no extension to the December transition deadline will lead to a drop in the pound.

The pound is also expected to react to next week’s final round of negotiations.

As we move closer to Brexit deadlines and Brexit-related news, the pound will continue to be sensitive. If you are worried about currency exchange and the value of the pound when transferring your hard-earned money overseas, get in touch with Universal Partners and their dedicated foreign exchange specialists. You can discuss your currency needs, get the best exchange rates and navigate the uncertainty that lies ahead. Do not let Brexit impact your currency transfers, maximise your currency potential with UPFX.

The uncertainty caused by the coronavirus pandemic has certainly affected exchange rates and increased currency volatility. However, the US Dollar is a safe-haven currency, like CHF and JPY, which means traders have turned towards the USD during the crisis, causing it to move higher. In the short term the outlook for the USD appears to be positive. In the long term, though, the currency is seen as dropping, according to recent analyses. But let’s see more closely what is happening to the USD.

Short-term outlook

For many economists, the buying of safe-haven currencies due to the coronavirus will continue in the coming weeks and will strengthen the dollar. Already, the greenback has been steadily rising through 2020, but rose even higher, outperforming its major peers as global governments struggled to contain the virus, enforcing strict lockdown measures that have unavoidably hurt their economies.

Eventually though, in the longer term, the dollar will decline, according to Georgette Boele, senior FX strategist at Dutch investment bank ABN AMRO. Referring to the dollar’s outperformance, Boele said: "Do we expect this trend to continue? In the near-term (up to 3 months) yes, on the longer-term no.” The dollar will possibly rise higher, the Dutch bank predicts, because traders are overoptimistic about how quickly global economies will recover. Once it is realised how badly global markets have been hit, another wave of selling riskier assets and buying “safer” ones such as the USD will be triggered. As Boele explains: "There is an enormous gap between the economic reality and what analysts forecast, on the one hand, and the optimism among investors for the second half of this year, on the other. This should support the U.S. Dollar as most liquid safe haven currency.”

For Boele, the Dollar will find support in the short term if there is a second wave of coronavirus cases, as investors turn again to safe havens.

Additionally, in terms of Sino-American tensions, any increase of anxiety regarding geopolitics will favour the USD.

While the dollar will not be falling any time soon, it is possible that with the easing of the lockdown measures and the risk of a global recession being averted, the greenback might experience downside pressure. 

Long-term outlook

This is why, as Boele asserts: "After macro and earnings disappointments in the next few months, later this year investors could start to look forward to a strong and durable recovery in 2021. Therefore, over the medium term, investors will shy away from safe haven currencies such as the US dollar and Japanese yen and be open for alternatives.”

As economic conditions improve, the dollar could possibly lose momentum. The US Federal Reserve’s QE programme which has increased dollar supply to respond to the coronavirus pandemic will also add to the dollar’s potential woes. Boele said: "Because of the unlimited QE by the Fed, there is already some more confidence in financial markets. As soon as safe haven demand fades, the Dollar will decline. The QE is simply too large for the Dollar to ignore.”

How UPFX can help

If you are selling or buying dollars and are concerned with transferring your hard-earned money, then you can reach out to Universal Partners FX. Their dedicated foreign exchange currency specialists can offer valuable insights into the markets and tailor their services to your specific needs, protecting your funds from unpredictable currency movements. If you want to discuss your FX needs or make a transfer, please get in touch with Universal Partners FX.

The pound was lifted after the release of Markit's preliminary Purchasing Managers' Indexes for May which bounced from April's figures. However, the data is far from positive for many economists as Britain’s economy continued to shrink, suffering its worst contraction for the month of May. According to CBI chief economist Alpesh Paleja, May has been a “pretty awful” month for businesses.

Thursday’s release of data from IHS Markit’s PMI surveys, shows that both the manufacturing and service sectors have been shrinking as the lockdown continues, with signs that the pace of the decline is slowly easing.

The UK Composite Output Index for May was 28.9, up from 13.8 in April, the UK flash manufacturing PMI (May) 40.6, up from 32.9 and the UK services flash PMI (May) 27.8, up from 12.3. While the contraction is slower, still the readings are below 50, which indicates a slow in activity.

Chris Williamson, chief business economist at IHS Markit, explained today’s numbers:

“The UK economy remains firmly locked in an unprecedented downturn, with business activity and employment continuing to slump at alarming rates in May. Although the pace of decline has eased since April’s record collapse, May saw the second largest monthly falls in output and jobs seen over the survey’s 22-year history, the rates of decline continuing to far exceed anything seen previously. Travel and tourism firms, hotels, restaurants and producers of consumer goods such as clothing were again the hardest hit, reflecting virus containment measures, but this remains a shockingly broad-based downturn with very few companies left unscathed by the COVID-19 pandemic.”

Businesses have suffered

With businesses shut during the lockdown, activity has been low, with cancellations of orders and a drop in demand. New employment to UK firms was also low, resembling the record lows of April.

The slowdown shows the stark reality of the coronavirus impact on the economy, which is slightly different than economists’ optimism and expectations of a quick bounce back.

For Neil Birrell, Chief Investment Officer at Premier Miton, the recovery will happen, but is still far away: “The PMI data in from the UK and Europe suggests that the outlook is improving. That is to be expected, as the surveys are taken mid-month and economies were more open than they were in mid-April. But with UK Composite PMI at 28.9, albeit up from 13.8 in April, and the Eurozone Composite PMI reading at 30.5 the outlook is still grim. Markets may well take this as a sign that the nadir has been reached, although recovery is some time off.”

Similarly, Duncan Brock, Group Director at CIPS, believes that a second wave of Covid-19 infections could slowdown recovery. He said that the easing of the lockdown does not signal a clear way towards improvement in the manufacturing and services sectors. He added: “This month saw another steep fall in overall business activity, surpassing for the third time the rates of decline seen during the global financial crisis in 2009. No new orders, premises shut down and furloughed staff unable to return to work were at the heart of the desolation as business struggled to continue with two hands tied behind their back.” Additionally, if job cuts continue and “purse strings will be drawn tightly shut and spending severely curtailed, putting further pressure on the UK economy and ensuring any recovery is many years into the future.”

If you are sending money abroad and are worried about currency volatility due to the current economic conditions, please get in touch with Universal Partners FX. UPFX’s dedicated foreign exchange specialists can help you access bank-beating exchange rates and transfer your funds fast and securely.

 

Universal Partners FX (UPFX) is delivering foreign exchange services, at zero profit to the company, to all organisations bringing in vital COVID-19 equipment. This service is listed by The Crown Commercial Service, the official procurement body. The founders of UPFX, Dhaval Patel and Oliver Carson, introduced the extraordinary measure to give practical support during the current crisis. They are believed to be the only FX Company offering this service.

UPFX has created a special team, who prioritises COVID-19 payments. No fees are added to these transfers and it can mean extending credit limits to facilitate faster transactions.

Many UPFX clients were protected by forward contracts coming into the lockdown, meaning they had certainty over the rates they will pay during this time of high volatility. However, UPFX could see that some were struggling, and this was delaying vital supplies reaching hospitals.

Dhaval Patel, co-Founder and Director of UPFX, explained; “We could see that foreign exchange issues were slowing down the procurement process. Those delays meant that medical teams weren’t getting vital supplies in time (including PPE and hand sanitiser), which could lead to loss of life. 

In addition, with sterling rates moving over 10% in a short space of time, many UK businesses saw increased costs on imports. By forward buying, our clients saved that 10% and that value translated to more vital supplies being available to those on the front-line.”

Pai Skincare, a natural and ethical cosmetics company, created a hand sanitiser especially for coronavirus and have donated 8,000 units. UPFX converted $150,000 and EUR 170,000 for them in March.

Sarah Brown, the Founder of Pai Skincare explained; “We are a global business. There has been so much volatility in the markets with Brexit and now Covid-19. Universal Partners has kindly provided their service at cost during the Covid-19 crisis, as we are providing essential items related to Covid-19.”

JAG UFS, a logistics solutions company, has brought in 10 x 747 aircrafts carrying PPE (including 10 million face masks in each aircraft) to supply NHS Scotland & Wales.

UPFX has been forward buying on $7million for supplier payments.

Gary Wilcox, the CEO of JAG UFS commented; “UPFFX has been instrumental in the PPE deliveries, allowing us to forward buy on currency. During so much uncertainty, they have really added value to our business and to the NHS in Scotland and Wales.”

UPFX has also donated care packages to local hospitals. These include additional hygiene supplies and snacks.

UPFX is renowned for their extraordinary growth. Founded in 2017, they achieved a turnover of £113m during their first year. In 2019 their turnover had grown to £945 million with £2.8 million profit

Oliver Carson, the co-founder of UPFX concluded: “We’ve been extraordinarily successful, and it was time to give back. This virus has affected all our lives, we’re pleased to be able to play our part in the work to fight it.”

Brexit has been instrumental in the pound’s trajectory, responsible for its collapse and slow recovery. The coronavirus pandemic comes to add more pressure to the pound due to the lockdown measures and the ensuing adverse economic effects.

In the short term, as the UK grapples with the threat of Brexit and the coronavirus, the outlook looks extremely negative. But, how will the pound fair in the long term?

What’s happening now?

Sterling has been hit by Brexit and the coronavirus crisis, with the latter making its effects on the British currency very clear in mid-March, when the GBP plunged to levels not seen in 35 years with anxious traders turning towards safe havens such as the greenback. Until the pandemic is over, analysts predict that the pound will continue to be weak. At the moment, Sterling will remain reactive to headlines concerning the pandemic which has triggered the deepest decline in economic activity since 1929.

Indeed, things have changed a lot since last December when traders felt optimistic about Boris Johnson’s decisive victory in the general election, with many expecting significant progress in the Brexit talks and positive economic data.

Now, with the transition period due to expire at the end of the year and the government saying that it will not ask for an extension, the reality looks different, with the possibility of leaving without a deal posing a real threat to the pound’s future. This means that the UK could fall into a recession as economists have warned.

Short-term predictions

Georgette Boele, Senior FX Strategist at ABN AMRO has said: "In the near-term we expect another wave of risk-off in financial markets as markets are in our opinion too optimistic currently on the speed and strength of economic recovery." Boele added: “There is an enormous gap between the economic reality and what analysts forecast, on the one hand, and the optimism among investors for the second half of this year, on the other. This should support the U.S. Dollar as most liquid safe haven currency."

Long-term predictions

Following Brexit, the forecast for the pound has been dire.  As Brexit troubles are not over yet, and as the coronavirus continues to inject fear in investors, the long-term outlook for the pound is definitely bearish.

Since the June Brexit referendum, consumers have underpinned Britain’s economic expansion as businesses stopped investing. Despite the fall in the pound, consumer spending has grown since the vote, and with many businesses now closed due to the coronavirus, understandably, there are concerns for an economy so reliant on consumption.

With the economy hurt due to lockdown restrictions and a lack of exit strategy, the pound will be under pressure for the long term.

GBP: Investors turn bearish

In the Financial Times article “Investors turn bearish on the pound,” Philip Georgiadis writes that investors are anticipating further falls for the pound and have “increased their bets against the UK pound to the highest level of the year, raising the spectre of a new bout of volatility for the currency.” According to the article, “fund managers and other companies betting in the futures market have turned bearish as concerns over Brexit rise in parallel with the damage the coronavirus pandemic is causing the UK economy.”

Similarly pessimistic is Rabobank which says: “Additionally, insofar as no real progress was made on the last round of post-Brexit talks between the UK and the EU and given that the summer deadline for any request for an extension to the transition phase is looming, it is difficult to be optimistic on GBP.”

Analysts at Danske Bank also find that in the coming months the pound will remain under pressure as “Time spent fighting the coronavirus by both the UK and the EU means less time to negotiate a deal before the end of the year, increasing the risk of a big trade shock by 1 January 2021.”

While overly optimistic valuations might fall to meet reality and as such drive the pound lower, there is also the possibility of the British currency strengthening as the global outlook improves. Sterling’s weakness due to global uncertainty could be reversed as nations successfully fight the virus and recover.

What is certain, is that there are no certainties and the pound could easily come under pressure as optimism withers.

How UPFX can help

If you have a Sterling transfer, wish to better understand the market outlook or want to discuss your FX needs with a foreign exchange currency specialist, please get in touch with Universal Partners FX.

With UPFX you can save money on your international currency transfers, access competitive exchange rates and a dedicated customer service.

The UK economy has shrunk sharply in the first quarter of 2020, according to the Office for National Statistics (ONS). Sterling fell initially, but then stabilised after the British government extended its furlough scheme until the end of October.

GDP

GDP fell 2.0% fall in the three months to March after there was no growth in the three months to February. Particularly, March was a terrible month for the economy, as the GDP dropped by 5.8%, marking the worst performance since the ONS started calculating monthly data back in 1997.

While the UK economy before the Covid-19 lockdown was not faring well, contracting by 0.2% in February, as the coronavirus pandemic started, in March, however, it suffered dramatically. The drop in the first three months is considered to be the biggest quarterly drop in activity since 2008 after the collapse of the Lehman Brothers and the beginning of the global financial crisis.

Yesterday, chancellor Rishi Sunak warned that the UK recession was “already happening”, and that things will not improve in the near future. Last week, the Bank of England forecast that the UK economy might contract by 25% in the April-June quarter, which could be the deepest recession in three centuries.

Decline in Services, Manufacturing and Construction

The ONS reported that in March, with the beginning of the lockdown, the GDP contracted by 5.8% with the services sector shrinking by 6.2% during March, manufacturing output dropping by 4.6% during the month and construction contracting by 5.9%.

The Office for National Statistics explains that there is a close connection between the lockdown measures and the drop in economic activity:

In response to the coronavirus (COVID-19) pandemic, public health restrictions and social distancing measures have been put in place in the UK, leading to a widespread disruption to economic activity. These measures have impacted upon the spending behaviours of consumers as well as how businesses and their employees operate. It has also affected the provision of services provided by government, including health and education.

Services output decreased by 1.9% in Quarter 1 (January to March) 2020, the largest quarterly fall since records began. Production output fell by 2.1% in Quarter 1 2020, driven by declines in manufacturing. Construction output decreased by 2.6% in the first quarter.

According to Jonathan Athow, deputy national statistician for economic statistics, in March, the coronavirus pandemic hit the economy hard, with certain industries such as services and construction declining sharply and others, such as IT support and pharmaceuticals seeing growth.

Key points from the release:

The release reflects the dire effects of the coronavirus pandemic and the economic disruption to various sectors. March was the worst month as education fell by 4.0% due to school closures, wholesale and retail trade and repair of motor vehicles and motorcycles by 10.7%, food and beverage service activities by 7.3% and accommodation by 14.6%. The travelling sector was also hit falling by 23.6% while transport equipment-making declined by 20.5%.

What economists say:

Talking on Sky News, Sunak said that the government was positive and could “emerge stronger” on the other side. He said: “In common with pretty much every other economy around the world we’re facing severe impact from the coronavirus. You’re seeing that in the numbers. That’s why we’ve taken the unprecedented action that we have to support people’s jobs, their incomes and livelihoods at this time, and support businesses, so we can get through this period of severe disruption and emerge stronger on the other side.”

However, Tej Parikh, chief economist at the Institute of Directors, fears that Britain will not “emerge stronger” from the lockdown as he believes that UK firms will remain under pressure:

While countless companies have made adjustments with admirable speed, many will find it difficult to operate at anything like normal capacity under social distancing rules. The furlough scheme has undoubtedly staved off redundancies, and the new flexibility provides businesses a better chance of rebooting.

The Treasury will need to continue innovating to kickstart any recovery. The Government’s loan scheme provided ready cash, but now leaves many firms saddled with debt. Unless this is managed well, it will drag on business investment for long after the lockdown ends.

If you are sending money abroad and are worried about the pound’s volatility due to the current market conditions, please get in touch with Universal Partners FX. UPFX’s dedicated foreign exchange specialists can help you access the most competitive exchange rates and make your currency transfers stress-free.