[vc_row][vc_column][vc_column_text]The pound trended lower against the majority of its peers again last week as a combination of Brexit uncertainty and concerns over a second wave of coronavirus infections weighed on Sterling sentiment.

At the same time, the US dollar bounced back from some initial losses as coronavirus jitters and the threat of transatlantic trade tensions bolstered the appeal of the safe-haven currency.

Sterling, meanwhile, continues to struggle this week, with GBP/EUR sliding to €1.09, and GBP/USD retreating to US$1.22.

Looking to the week ahead, it’s likely to be another volatile week of trading in currency markets as investors remain focused on coronavirus developments and the start of the latest round of Brexit negotiations.

Pound slumps on Brexit and second wave fears

The pound was on the back foot again last week as Brexit uncertainty coupled with rising concerns over a second wave of coronavirus infections weighed on the UK currency.

Sterling started shakily last week, with some initial gains at the prospect of more of the UK economy reopening offset by warnings the UK must prepare for a coronavirus resurgence.

GBP investors welcomed Boris Johnson’s announcement that pubs, restaurants, and hairdressers will be able to reopen from 4 July with the easing of the government’s 2m distancing rule.

However, this was quickly undermined by an open letter from UK health experts to the government, warning more must be done to prepare for a second wave in light of easing lockdown restrictions.

The Sterling sell-off then accelerated through the latter half of the week in the face of renewed Brexit uncertainty.

This was centred on comments from German Chancellor Angela Merkel, who warned the UK will have to ‘live with the consequences’ of a ‘less closely interconnected economy’ with the EU. A notable hardening of her stance towards a no-deal Brexit.

Looking ahead, the focus will remain squarely on Brexit this week as a month of ‘intensive’ trade talks between the UK and EU gets underway in Brussels.

While Boris Johnson has expressed his hopes that a trade deal could be reached in July, few analysts share in his optimism, given the key issues which remain unresolved.

As such, it’s likely we could see the pound extend its recent downtrend so long as the deadlock remains.

Euro rallies on economic optimism

Even though markets became concerned about a second wave of coronavirus cases, the euro retains its appeal, boosted by Eurozone data.

The euro found support at the start of last week with better-than-expected PMI figures from the Eurozone this month.

Euro gains were capped, however, by the US threatening to impose tariffs on $3.1bn worth of EU goods.

As EU officials continue to work towards stimulus and recovery plans to help the Eurozone handle the coronavirus pandemic, markets are relatively optimistic about the Eurozone outlook.
This is helping the Euro to advance over currencies correlated to markets with bigger coronavirus infection rates. For example, the Euro is still benefitting from weakness in the US dollar (USD) as US coronavirus infections soar.

The latest Eurozone inflation data was also boosted optimism in markets. It showed a surprise uptick in inflation to 0.3% year-on-year from 0.1% as Eurozone economies began to reopen.

June’s final Eurozone PMIs, due tomorrow through to Friday will give investors a better idea of how the Eurozone economy performed amid the coronavirus pandemic over the past month.

Looking ahead, markets will keep a close eye on developments in EU fiscal stimulus while any weakness in the US Dollar (USD) is also likely to further buoy the Euro.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

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