[vc_row][vc_column][vc_column_text]The pound struck higher through last week’s session, rallying from a three-month low against the euro in response to an improving market mood and a correction in currency markets at the end of the second quarter.

At the same time, the US dollar was placed on the back foot last week as hopes for the coronavirus vaccine limited demand for the safe-haven currency.

Sterling, meanwhile, is mostly rangebound so far this week, with GBP/EUR muted at €1.10, and GBP/USD holding steady at US$1.24.

Looking to the week ahead, it is likely coronavirus concerns will continue to dominate investors’ sentiment, potentially infusing fresh volatility into currency markets.

Pound rallies on improving market sentiment

The pound mounted a recovery last week, with the increasingly risk-sensitive currency rebounding from its recent lows thanks to a more upbeat market mood.

Sterling started poorly last week, slipping to a three-month low against the euro as GBP investors remained pessimistic on the chances of a breakthrough ahead of a month of ‘intensified’ Brexit talks.

Further weighing on Sterling sentiment were concerns over the UK’s coronavirus outbreak as a local spike in cases prompted the government to re-impose lockdown measures in Leicester city.

However, GBP rebound quickly from its worst levels, rallying on Tuesday in response to Boris Johnson’s ‘ambitious’ plans for a post-lockdown recovery, on top of a correction in currency markets at the end of the second quarter which favoured the pound.

But it proved difficult for Sterling to extend this recovery through the second half of the week, with further upside in GBP exchange rates capped by renewed Brexit uncertainty.

This followed the conclusion of the latest round of negotiations, with both the UK and EU warning that ‘serious differences’ remain and will need to be resolved before any kind of deal can be reached.

Looking ahead, the spotlight for GBP investors this week will be on Rishi Sunak’s summer budget statement.

The Chancellor is set to update the nation on the current state of the economy as well as announce additional stimulus measures, which could help to bolster the pound if markets believe they will aid the UK’s economic recovery.

Also continuing to influence GBP exchange rates this week will be ongoing Brexit trade talks.

Expect these to weigh on Sterling sentiment towards the end of the week if talks continue to drag on without much progress.

Euro under pressure as EC forecasts deeper recession

The euro was left under pressure at the start of this week after comments from the European Commission stated the bloc is set to fall into a deeper recession than first forecast. This offset upbeat German data which showed a rebound in industrial production and increased factory orders.

The single currency was weighed down by the latest European Commission forecast which also revealed the bloc will take longer to rebound than previously thought. The biggest economies including France, Italy and Spain are some of the worst affected because of the coronavirus crisis.

Last week, the euro fell slightly lower after data showed underlying price pressures decreased in the bloc, although a weaker US dollar allowed EUR to make some gains.

The single currency remained under pressure mid-week as while the slowdown in Germany’s manufacturing sector contracted at a slower pace, the PMI remained in contraction territory.

However, in further signs of a recovery, unemployment in the Eurozone edged higher by only 0.1% to 7.4% but came in lower-than-forecast.

Looking ahead, the euro could continue to struggle following the release of further economic growth forecasts from the European Commission.

Although, the currency could receive some support if German data continues to boost confidence. If exports rebound in May, in a further sign the export-reliant economy is on track to recover, EUR will make gains.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

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