Sterling set for more pounding

Forex experts say that the next two months are very crucial for the UK due to its negotiations with the European Union. - Reuters
Forex experts say that the next two months are very crucial for the UK due to its negotiations with the European Union. - Reuters

Dubai - UK retail sales fell by 18 per cent in April due to lockdown.



By Waheed Abbas

Published: Sun 24 May 2020, 2:13 PM

Last updated: Sun 24 May 2020, 4:26 PM

The British pound is expected to shed eight per cent of its value against the dirham if volatility in currency continues due to global economic slowdown, coronavirus outbreak and post-Brexit transition period, analysts and experts say.
The British currency will likely to sustain a downward trend in the coming few weeks as volatility in the British pound is expected to continue in the near future as negotiations between the UK and the EU on their post-Brexit relationship stalled on Friday.
Forex industry executive say that the next two months are very crucial for the UK due to its negotiations with the European Union and the impact of the pandemic on consumer spending.
"Volatility is expected in June when European Union and the UK will have one final round of negotiation. If an extension is not agreed, sterling could weaken further to 1.19 against the dollar or 4.3710 versus the dirham. But if an extension is agreed, sterling should appreciate to 1.25 levels against the greenback or 4.5915 against the UAE currency," said Rajiv Raipancholia, CEO of Orient Exchange.
Dubai-based LuLu Financial Group also estimated that the pound will settle in the range of 1.175 to 1.25 against the dollar in the short-term period. Sterling has continued to steadily depreciate since start of May. It was trading at 1.2529 against the dollar (4.6020 against the dirham) on May 1, 2020. It hit 1.2170 against the dollar (4.4700 versus the dirham) on Saturday.
Nigel Green, chief executive and founder of deVere Group, also projected that pound - this month's worst-performing major currency - could 'easily drop to $1.18' at the end of June.
The British currency has shed almost four per cent against the US dollar in May and three per cent against the euro.
Pound is this year's third-weakest major currency - just behind the New Zealand dollar and Norwegian krone, which have done even worse. The pound has been battered since the Brexit referendum in 2016 and the ensuing years of political uncertainty, losing around 20 per cent of its value since the referendum. "The Covid-19 crisis has been another hammer blow for sterling as it promoted a flight-to-safety and ramped-up the search for liquidity. This situation is a win for the US dollar and, in turn, a loss for the pound," added Green.
"There are legitimate concerns that the pound has further to fall in the next few weeks. It could easily drop to $1.17-$1.18 by the end of June due to renewed and heightened fears of a negative shock due to a no-deal Brexit combined with the far-reaching economic fallout of the pandemic," he added.

Influential factors
Adeeb Ahamed, managing director of LuLu Financial Group, said uncertainty arising from the Covid-19 has affected several currencies. Hence, the pound too has witnessed a weakening in recent weeks due to the ongoing crisis, along expected lines.
"The prevailing Brexit-related issues and general trade uncertainty between the UK and EU have also put the pound at a disadvantage. The outcome of the upcoming trade talks between the UK and EU, and a quick return to normal public life post-Covid-19, will be crucial in determining the pound's strength in the coming months," said Ahamed.
Raipancholia noted that the outlook on sterling depends on several issues including pandemic crises, Brexit trade negotiations and Bank of England's decision to cut interest rates. Tensions between China and the US led dollar to appreciate against other currencies such as pound. In addition, the UK retail sales fell by 18 per cent in April due to lockdown. - waheedabbas@khaleejtimes.com


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