Sterling has had a volatile first few months of the year, to say the least.
After a steady run of strength against most major currencies leading up to April, GBP began to wobble. At first, the UK’s efforts to roll out vaccinations at breakneck speeds suggested that the UK would be among the first countries to reopen and get its economy back on track.
Then in the first week of April things started to wobble. The pound-to-euro rate pushed down from 1.177 to 1.52 between the 6th and 7th of April. Most investors speculated that the reason for this was some of the shine coming off the vaccine distribution news.
On top of this, many European countries — which were struggling with their vaccine distribution schemes — started get to them on track.
The change this week
The beginning of the week saw things change again. It was a bullish day for sterling. The pound-to-euro rate rocketed from around 1.14 on Friday to reach highs of 1.167 on Wednesday. Meanwhile, the pound-to-dollar rate pushed up from circa 1.39 to 1.45 on Monday. (All rates mentioned are mid-market rates).
Moreover, it looks like GBP is holding its ground, at least for the short term.
Why the move?
There has been a number of reasons why the pound saw a boost earlier in the week. Underpinning them all has been the Bank of England meeting held on May 6th. Policymakers announced plans to ease quantitative easing (printing money).
Why would this have a positive effect on the currency? It goes back to the age-old principle of supply and demand. The more money put into an economy’s circulation, the more supply there is. Naturally, this reduces the purchasing power of a currency.
As such, the Bank of England’s move to mitigate quantitative easing will have the opposite effect and should serve to strengthen the pound.
Scottish election results
The Bank of England’s announcement wasn’t the only factor that played a part in the sterling’s boost this week.
One of the main reasons why the currency struggled during the month of April was the anxiety surrounding the results of the Scottish election on Thursday 6th May. The polls predicted that Nicola Sturgeon’s SNP party would pave the way to victory. If Sturgeon won a majority, then a Scottish referendum would have been very much on the cards.
The threat of Scotland leaving the United Kingdom and potentially rejoining the EU would have spelt bad news for the UK economy.
But that’s not how it all panned out. In the end, not much changed. The results were similar to that of the 2016 election. Only 3 out of 73 constituencies changed hands. Nicola Sturgeon’s SNP party fell one seat short of winning a majority.
The result pushed back the chance of a Scottish referendum. And in doing so, it elevated investors’ faith in sterling for the future.
The UK continues to reopen as planned
As we mentioned, GBP struggled through April due to the fact that its previous strength was based on its vaccine success, and those positive headlines began to get old.
On Monday, the UK economy had another shot in the arm (sorry), when Boris Johnson took to stage to announce that the agenda to reopen will continue as planned.
From 17th May, restaurants, pubs and bars will be permitted to serve customers indoors, cinemas and leisure centres will open, and social distancing will become a matter of choice.
All this suggests the UK is on track to open fully and get its economy running as it once was. This bounce-back will be greatly felt. Great Britain suffered the biggest hit to GDP out of all the developed countries, so it has the most to gain from getting things back to normal.
In being one of the first countries to bounce back to a thriving economy, foreign entities will be inspired to invest in Britain.
But how long will this last? As a spokesperson from NatWest says, “much of the UK’s positive story is already in the current level of Sterling and so the scope for Sterling gains has naturally become more limited.’
Time will tell if GBP’s recent gains are here to stay for the long term.
What does this mean for me?
If you’re a British expat who moves money from the UK to Portugal, then it’s likely that you keep a close eye on the pound-to-euro exchange rate.
At Privalgo, we help individuals like you take advantage of the volatility we’ve spoken about in the article. Our smart solutions allow you to target a favourable rate of exchange. Once that rate is met, we can make the transfer for you.
This is a clever way of using market movement to your advantage without having to put in any of the effort yourself.
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