If you’re planning on making a major currency transfer this year, it can be difficult to know when to pick the best time to do it. Below we look at some of the economic and political drivers likely to be behind the rise or fall of the Pound in 2020 and what you can do to avoid being caught out.
It’s been a rocky three-and-a-half years for the Pound since the referendum on leaving the EU happened back in 2016. In the immediate aftermath of that result Sterling took a hit, falling by around 20% against major currencies such as the Euro and the US Dollar. But with the UK now finally having left the EU what can we expect for Sterling throughout 2020 and beyond?
Despite a rally following the election of Boris Johnson’s Conservative Party, the Pound still remains down by around 15% compared to its 2016 high. The UK is now in a transition period for the remainder of 2020 during which time negotiators will attempt to thrash out trade deals with the EU and the rest of the world. The progress – or otherwise – of these negotiations will likely be the main driver for the value of the Pound, but there will be others.
First and foremost, currency traders are breathing a sigh of relief that years of uncertainty regarding Brexit have finally come to an end. Nevertheless, any relief may prove to be short lived, with UK Prime Minister Boris Johnson having already fired a warning salvo with his remarks that the Britain would refuse to accept alignment with EU rules on trade. These remarks led to an instant drop in GBP exchange rates.
But it won’t just be trade talk that will affect the value of the Pound; volatility is likely to continue throughout the year due to a number of other factors. The most immediate of these in the outbreak of the 2019 Novel Cornonavirus, which has infected thousands of people in China and is continuing to spread beyond borders.
Unless the virus is contained, there are likely to be severe knock-on effects to the Chinese economy as factories grind to a halt and trade is disrupted. This would almost certainly cause the value of safe-haven currencies, such as the US Dollar, to rise, and with the Pound also possessing something of a safe haven status we can expect to see some movement to the upside for GBP rates in the short to medium term.
While the effects of the virus spreading more widely are not yet known, it is a safe bet to assume any currency market volatility is likely to centre on the Asian region for the time being, with the Australian and New Zealand Dollars also suffering against the Pound as a consequence.
The Eurozone remains under pressure due to increased signs of an industrial slowdown and a slump in consumer spending, meaning GBP is more easily able to retain its current strength against the Euro. Recent growth data indicates that France and Germany are both at risk of falling into recession in 2020, although other areas of the bloc remain more resilient.
The January decision by the Bank of England to keep UK interest rates on hold at 0.75% indicates confidence in the UK economy is being sustained. This is in contrast to the Eurozone interest rate being stuck at a historic low of 0%, with no changes expected at this stage. With rates remaining this low we can expect to see the Pound edge up against the Euro, all other things being equal.
Another major factor likely to impact the Pound on world currency markets this year will be the presidential election taking place in the USA. With the US economy remaining strong relative to others, currency markets are not anticipating any big moves in the GBP/USD exchange rate as a direct result of political turbulence. Nevertheless, all bets are off when it comes to President Trump and his uncanny ability to upset world markets and ratchet up trade tensions.
That brings us back once more to the UK and its efforts to secure favourable trade deals with the EU and the US ahead of the end of the transition period for leaving at the end of 2020. Any failure here would mean the UK reverts to World Trade Organisation (WTO) rules – something that would undoubtedly have a severe effect on the Pound towards the end of this year.
So, all in all, we can expect to see a fairly high level of volatility for Sterling this year, with exchange rates being driven by major world events. If you are planning any major money transfers this year – or are just concerned about the value of your regular payments – and you want to avoid the risk of currency fluctuations, check out our currency transfer solutions and get some peace of mind for what promises to be an eventful year.
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