The British Pound could strengthen against the Euro and Dollar in the coming weeks if economic data continues to beat expectations, according to the latest projections by economists. But, analysts at Bank of America have told clients on Tuesday that Sterling was more like an emerging market currency. Lead analyst Kamal Sharma said that the currency’s movements the last four years since the UK Brexit referendum have been “neurotic at best, unfathomable at worst.”

Pound: An emerging market currency

It is not the first time that the pound has been described as an emerging market currency. Last year, in September, Bank of England governor Mark Carney said that Brexit-related volatility had made the pound act like an emerging market currency.

According to this week’s reports, “Sterling’s spreads and implied volatility – the future range investors expect GBP to move in – remain far wider than other major world currencies, such as the U.S. dollar, euro or Japanese yen, and resemble something closer to the Mexican peso.” Brexit uncertainty and the possibility of negative interest rates have hurt investor sentiment, BoA analysts said.

Better than expected data could offer support for Sterling

But Pound Sterling Live stated that if UK economic data continues to come in better than expected the pound will be supported. It did note, however, that “those looking for a stronger Sterling will continue to have to exercise patience in the near-term.”

With recent economic figures beating expectations and markets underestimating how quick the UK’s economic recovery will be, there is a “decisive shift in momentum.” Tuesday’s PMI data for June were better than expected with the Markit/CIPS Manufacturing PMI at 50.1, the Services PMI at 47, and the Composite PMI at 47.6, all above forecasts.

According to analyst at DNB Markets Kjersti Haugland, things are even more positive as there is a significant rebound of the economy. He said: "A literal interpretation of the figures suggests that manufacturing activity stabilised in June while service sector activity fell further, as a reading below 50 indicates a contraction compared to the previous month. However, some of the respondents may make a pre-Covid-19 comparison instead. Therefore, the sharp increase in June suggests activity is picking up quicker than expected.”

The British Pound does well when the UK economy is growing, unlike the US Dollar which strengthens when the economy is in decline due to its safe haven status. So, if the UK economy continues to grow and economic data comes out stronger than expected, then the pound will find support. This coupled with an easing of lockdown restrictions and the opening of businesses will help the economy recover. As the PM Boris Johnson announced on the 23 June, pubs and restaurants, campsites, hotels and holiday homes will reopen on 4 July. Other businesses such as spas, nail bars, casinos and swimming pools will remain closed.

However, a stronger Pound might be a distant possibility for now, as Sterling was the worst performing currency the past month out of the G10 and was “near the bottom of the pack which reflects a short- to medium-term trend is in place against many major currencies and this will prove tough to crack.”

 

With Brexit uncertainty to continue due to the ongoing negotiations and the harsh stance of the Bank of England both on quantitative easing and interest rates, the pound will remain volatile.

If you are a business sending money abroad or an individual transferring your funds 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 transfer your funds safely and maximise the value of your money.

On 22/06/2020, Universal Partners were named in the Start Ups 100 list of disruptive UK start ups.

Entering the list at number 20, this is a fantastic achievement considering this is the first year we have entered and is yet another indication of the amazing growth of the company.

Director Oliver Carson says hard work is the key to the growth. "With turnover last year of over £900 million we know that this is not possible without the incredible work from each and every member of staff." He added that client trust was also critical in establishing such a strong foundation for the company with those who work with us "showing faith in what we do and what we can deliver".

 

About the Startups 100

Entering the Startups 100 is completely free. Established in 2008, the Startups 100 index identifies privately-owned UK companies launched in the last 5 years which demonstrate innovation, solid financials, economic impact and the ability to scale. 

As the only and longest running index of its kind, the prestigious Startups 100 is industry renowned for uncovering businesses that will go on to become major brands, and even household names. It boasts alumni companies including eve Sleep, HelloFresh, Purplebricks, LendInvest, Deliveroo, Bulb, and many more acclaimed businesses

 

How it’s ranked:

  • Finance raised
  • Turnover for the previous financial year
  • Profit for the previous year
  • Projected turnover for the next financial year

 

The full list for 2020 can be viewed here

In October 2021, Universal Partners FX were listed again in the 2021 list, read more here

 

The latest release of the UK inflation figures has failed to provide a boost to the pound. Despite the recent Brexit optimism, the pound did not rise further after the latest inflation figures which came in line with expectations.

The GBP did not react to the news that inflation fell to 0.5% during May as it was expected. Sterling’s upside is also considered to be limited as traders are expected to remain cautious ahead of the latest monetary policy update by the Bank of England on Thursday. The BoE is expected to keep rates at 0.1% and increase its quantitative easing programme by £100bn.

UK CPI

According to the Office for National Statistics, the UK consumer price inflation eased for the fourth consecutive month in May, coming at an annual rate of 0.5%, meeting expectations. Inflation has fallen after a record fall in fuel prices which dragged the UK's inflation rate down. This was due to the lockdown as May was the second full month of the coronavirus lockdown restrictions. This was the lowest annual rate recorded since the Brexit referendum vote in June 2016.

Economists said that this will inevitably add to the discussions of whether the Bank of England will likely take Bank rates into negative territory.

ONS deputy national statistician Jonathan Athow said: “The growth in consumer prices again slowed to the lowest annual rate in four years. The cost of games and toys fell back from last month’s rises, while there was a continued drop in prices at the pump in May, following the huge crude price falls seen in recent months. Outside these areas, we are seeing few significant changes to the prices in the shops.”

Rising prices for food and non-alcoholic drinks helped offset the pressure from the falling oil and petrol prices in May.

What economists say

Economist James Smith explained that the UK inflation will stay below 1% this year:

“The other argument that is often made in favour of inflation returning, is that governments and central banks are pumping vast amounts of cash into the system. But this is unlikely to lead to higher prices, at least in the short/medium-term. In the case of the government, its spending has so far been solely aimed at keeping firms and consumers afloat, rather than trying to stimulate demand (which by definition, is constrained by the ongoing lockdown measures). The bottom line is that inflationary pressures are likely to remain fairly muted for the time being. This, in turn, will keep the pressure on the Bank of England to maintain its current degree of stimulus, and we expect a further £150 billion of QE to be unveiled this week.”

Chief UK economist at Capital Economics, Paul Dales, also said that "May's further fall in inflation is probably only the beginnings of a prolonged period of very soft price pressure." This he clarified, will drive MPC members to ask for more stimulus to boost the economy on the BoE’s policy meeting on Thursday.

For many businesses and consumers, the year ahead appears to be a very tough one, with more pressure on households. Businesses and employers have been hurt, and there is generally pessimism about the status of the UK economy due to the coronavirus and a possible second wave of Covid-19 cases.

If you are a business 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 transfer your funds safely, pay employees and maximise the value of your money.

The pound has regained its momentum since yesterday, after the positive news of new US Federal Reserve stimulus and the latest post-Brexit trade talks between the EU and the UK.

Sterling rose after Prime Minister Boris Johnson said yesterday that there is a "very good chance" a trade deal will be made with the EU. Both Johnson and the EU Commission President Ursula von Der Leyen agreed that there will not be an extension to the Brexit transition period, which will end on 31 December 2020. The pressure is now on both sides to agree on a post-Brexit trade deal, so the UK does not leave the bloc without a deal. If the UK leaves the bloc without a deal, then Britain will revert to World Trade Organisation terms, which will mean that the UK would have to pay high tariffs and quotas at a time when the country’s economy is dealing with the Covid-19 pandemic.

Fresh Momentum injected into the negotiations

According to Reuters, the hour-long video call on Monday between Johnson and the EU Commission’s von Der Leyen, “has injected fresh momentum” into the negotiations, as “people on both sides with knowledge of the conversation,” attested. The “EU inferred from Johnson’s contributions that he is willing to soften his position and European officials told him they are ready to do the same.” After the call, Johnson said: “I don’t think we are actually that far apart -- what we need to see now is a bit of oomph in the negotiations. The faster we can do this the better: we see no reason why you shouldn’t get that done in July.”

Obstacles Remain

Johnson’s latest communication with the EU comes after three months of trade talks which have ended in deadlock. However, things might not be completely resolved just yet, as EU Council President Charles Michel warned that the EU will not “buy a pig in a poke” as it was not in any hurry to reach an agreement. He said: “We won’t just speed up. We have to remain focused on content and consequences.” While the UK has been pushing to speed up the discussions, the EU wants to make reasonable steps, with the next discussions to resume on 29 June. Johnson explained that he is against the talks “going on until the autumn, winter, as perhaps some in Brussels would like.”

Both sides have failed to reach an agreement on a free-trade deal as well as find common ground when it comes to certain EU standards and demands regarding fishing rights and security which the UK believes are binding it to EU rules. Also, the UK continues to refuse to accept the power of the European Court of Justice to settle any disagreements between the two sides.

Pound Remains Unpredictable

With Brexit negotiations in the background, Paul Meggyesi, Head of FX Research at JP Morgan noted that the pound’s trajectory would remain unpredictable. He said: “GBP is liable to become ever-more idiosyncratic as the UK nears the business end of the entire Brexit process, the last six months of the transition period, with still a trade deal to be negotiated. This puts GBP at the mercy of unpredictable Brexit news flows, and investors should be prepared for potentially quite violent swings in GBP as the market tries to benchmark probabilities of the potential outcomes and eventually moves from valuing GBP on a probability-weighted basis to pricing a central scenario and then the eventual outcome itself.”

If you are sending money abroad and are worried about the pound’s volatility, 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.

The British pound is higher against the Dollar and lower against the euro on Friday, after the release of disappointing data showing that the UK economy contracted more than expected.

The UK GDP monthly release came at -20.4%% MoM in April vs. -18.4% expected, revealing that the economy contracted more-than-expected in April. This is the biggest month-on-month drop in GDP ever recorded and 10 times larger than the sharpest fall before Covid-19. The figures show that the GDP fell by 10.4% in the three months to April as a whole.

The Gross Domestic Product is released by the Office for National Statistics and is a measure of the total value of all goods and services produced by the UK. It is a broad measure of the UK economic activity and, in general, positive news such as a rising trend in economic activity can have positive impact on the pound, while a drop in numbers can be negative. 

The ONS reported that “April 2020 has experienced sharper falls than March as the negative impacts of social distancing and ‘lockdown’ have led to a significant fall in consumer demand and business and factory closures, as well as supply chain disruptions.”

 

Biggest monthly fall in UK history

According to the Office for National Statistics, the UK posted the biggest monthly fall in GDP in UK history this past April. The drop represented a 24.5% decline from April 2019, as lockdowns due to Covid-19 hit the economy. 

This week the Organisation for Economic Cooperation and Development (OECD) said that the UK economy would experience the worst damage from Covid-19 compared to any other developed nation. It predicted that GDP would contract by 11.5% in 2020 or 14% if there was a second lockdown due to the return of the virus.

Anneliese Dodds, Labour’s shadow chancellor, said that the OECD forecast was “deeply worrying” and that this was due to the government’s “failure to get on top of the health crisis, delay going into lockdown and chaotic mismanagement of the exit from lockdown.” 

Rishi Sunak, said the UK economy was similar “with many other economies around the world” and that the government’s intention was to “support people, jobs and businesses through this crisis – and this is what we’ve done.”

 

The OECD explained that “The failure to conclude a trade deal with the European Union by the end of 2020 or put in place alternative arrangements would have a strongly negative effect on trade and jobs.” A no deal Brexit would “significantly damage the UK’s potentially fragile recovery from its deepest recession in almost a century,” credit ratings agency Moody’s warned.

Laurence Boone, the OECD’s chief economist, said the world economy was “walking a tightrope” and that the possibility of a second outbreak could lead to another lockdown and recession. She said: “These scenarios are by no means exhaustive, but they help frame the field of possibilities and sharpen policies to walk such uncharted grounds. Both scenarios are sobering, as economic activity does not and cannot return to normal under these circumstances. By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments.” 

 

With the latest GDP figures, it has been confirmed that the slump in economic activity has been severe. The pound fell against the euro but was not shocked as the disappointing numbers were expected. As Sunak highlighted, the UK is not alone in experiencing the economic contraction due to the lockdown, as global economies are deeply hurt.

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.

On Wednesday (03/06/20), the Euro was up against the US dollar, marking its seventh consecutive day and the “longest winning streak since December 2013.” The euro’s surge is the result of investors moving away from the US dollar as well as news that the European Commission will be helping the Eurozone economy with a 750 billion euro ($826.5 billion) fund to ease the damage from the pandemic.

The Euro had a roller coaster ride the last few years. Recently, due to slower economic growth, the Euro has dropped, but there have been signs of increase as the Covid-19 pandemic hit financial markets and investors turned towards the safety of government bonds. But soon it fell again, as investors turned to safe-haven assets such as the US dollar. Since mid-March, the euro has been at its highest after the significant decrease of new coronavirus cases in the EU.

With the continued uncertainty due to the coronavirus pandemic and the ongoing Brexit negotiations, the Euro will remain sensitive. But let’s see what the main drivers of the euro in the coming months are.

Key Drivers of the Euro

Apart from the coronavirus pandemic and Brexit updates, the Euro is sensitive to releases of macroeconomic data including GDP, unemployment rates, manufacturing and services output and consumer price indices which measure the Eurozone economy’s health. Significant events such as meetings of the European Central Bank (ECB) and updates regarding policy on interest rates and fiscal stimulus, can also impact on the single currency. For example, low interest rates are unattractive to investors.

If the US Dollar rises, as the US economy strengthens and interest rates are increased by the Federal Reserve, then this will weigh on the Euro. There are also dangers from weaker global growth and a slowing of the EU member states’ economies, especially the German economy.

Last but not least, if the Chinese economy slows and China’s trade is reduced, then there will be less demand for European imports.

European Commission forecast for the Eurozone economy

In its Spring 2020 Economic Forecast, the European Commission reported that the coronavirus pandemic will have “very severe socio-economic consequences” for the global and EU economies. It has forecast that “the euro area economy will contract by a record 7¾% in 2020 and grow by 6¼% in 2021. The EU economy is forecast to contract by 7½% in 2020 and grow by around 6% in 2021. Growth projections for the EU and euro area have been revised down by around nine percentage points compared to the Autumn 2019 Economic Forecast.”

Paolo Gentiloni, European Commissioner for the Economy, said: “Europe is experiencing an economic shock without precedent since the Great Depression. Both the depth of the recession and the strength of recovery will be uneven, conditioned by the speed at which lockdowns can be lifted, the importance of services like tourism in each economy and by each country's financial resources. Such divergence poses a threat to the single market and the euro area - yet it can be mitigated through decisive, joint European action. We must rise to this challenge.”

Economists’ Predictions in the near- and long-term

According to Citibank, “Second waves of crisis, trade wars and the ECB’s future reaction will likely keep EUR soft near term and upside capped medium term despite a lot of bad news in the price.”

In the long-term, analysts at CIBC expect the Euro to rise: “While euro sentiment remains compromised by the lack of political coherence, we’ve seen the ECB taking action by expanding its balance sheet. However, that move has been dwarfed by the additional supply of USD currently being injected into the market, which remains supportive for the EUR/USD pair.” They added that positive fund flows as a result of the Eurozone current account surplus will benefit the euro, despite political uncertainty.

Natixis Research expects Eurozone inflation to return in 2021 due to the “decline in productivity and the increase in unit production costs due to the new health standards taken because of the coronavirus pandemic.” In turn, the increase in inflation will lead to a rise in long-term interest rates which will support the euro.

If you are considering buying or selling euros, get in touch with expert currency specialists Universal Partners FX. UPFX’s friendly and dedicated foreign exchange team is available to guide you through the current volatile market and help you transfer your funds safely and fast, while providing access to the most competitive exchange rates in the market. Give them a call today to find out how much you can save on your international money transfers.