Why is the Pound to Euro Rate Falling? Will it Continue?

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Daniel Wright
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U.K jobless claims were released in early morning trading today, much like many economic data releases the figures were posted at an earlier than usual 07:00, we normally would see a release such as this out at 09:30.

The figures, as expected were not particularly great reading for the U.K economy however there was a slight surprise in the fact that the official unemployment rate came in at 3.9% as opposed to the 4.3% which had been expected.

This news shows that employment was at a record high in the U.K before Coronavirus hit, but expectations are for figures next month to have changed quite considerably.

Jobless claims rose to a historic high much like many other areas of the world, and all in all the overall release led to very little market movement in early morning trading.

As I have mentioned previously on this blog, it does feel that economic data is having less of an impact at present than you would usually expect, mainly down to the reason that bad news has come to be expected for most regions around the world, so unless the news is drastically worse than expectations we tend to not see a big currency impact.

Brexit talks still show no sign of progress

Brexit talks still appear to be a big focus for sterling exchange rates at the moment, with very little progress again during talks last week and no further discussions expected until June, we are creeping closer to another big headline of ‘no deal Brexit’ creeping back into the news, which has historically hurt the value of the pound.

There is one more round of negotiating before parliament will meet to discuss whether or not an extension to the 31st December leave date is requested, with the Government having released a number of tariff plans for global trade this morning, citing that this will start on 1st January 2021 it does seem like the plan is still very much full steam ahead.

If no extension is requested then investors and speculators may start to be very wary of a no deal Brexit once more, these worries have previously led to quite a drop in the value of the pound so if you have a currency exchange to carry out in the coming days, weeks or months then it may be prudent to keep a very close eye on developments in the coming weeks.

Will the Pound Continue to Drop?

General market sentiment and global attitude to risk still appears to be a key player in the value of the pound, with a huge drop off seen in mid-March where GBPEUR exchange rate dropped below the 1.06 level and GBPUSD hit the 1.14s.

A lot of this could be put down to the fact that so much money came out of the U.K stock market. With a lot of money invested into the U.K stock market being foreign money, even more so currently because the pound is so cheap to buy, when investors got shaky back in March they pulled their money out of U.K stocks and shares and put it back onto home soil, or into so called ‘safer haven’ currencies such as the dollar or the Swiss franc.

With the lower demand for sterling because of this the pound lost value against a vast array of currencies so there are concerns that further drop in risk sentiment may result in a further loss in value for sterling exchange rates.

The pound is currently the worst performing major currency in May according to an article in the Financial Times, so there is a solid case to be put forward that due to the reasons highlighted earlier in this article the pound is currently out of fashion and may struggle to pick up a huge amount of momentum northwards until a clearer picture is painted regarding Brexit plans moving forwards, as this is an added element of doubt that many other currencies to not have hanging over their head.

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