Pound Volatile Versus US Dollar as Coronavirus and Brexit Fears Return

The Pound to US Dollar exchange rate has seen jittery movement since markets opened for the week. 

The pair briefly tumbled lower due to reviving fears over a potential second wave in the coronavirus pandemic. This concern hit the Pound, considered riskier, and boosted the safe haven US Dollar. 

However, concerns about the US economy being further impacted by the pandemic limited the US Dollar’s appeal as well. This helped GBP/USD to avoid further losses for now. 

Last Week: Higher Safe Haven Demand and Brexit Fears Weigh on Sterling 

Despite continued market concern over US economic and political uncertainty, the US Dollar was able to register some recovery against Sterling last week. 

The Pound performed poorly throughout the week. Concerns over the UK government’s mixed handling of the coronavirus pandemic, as well as returning Brexit fears, kept Sterling under pressure. 

UK government officials noted at multiple instances over the past week that it would not extend the Brexit transition period. This has worsened fears of a potential no-deal outcome to Brexit at the end of the year. 

Three Things to Watch For This Week 

  1. Coronavirus Developments 

Amid reports of a new rise in coronavirus cases in Beijing, fears of a ‘second wave’ are rising. If more developments suggest a second wave is likely, market risk-sentiment will be hit and the Pound is less likely to remain appealing. 

  1. Brexit Developments 

A fresh round of UK-EU Brexit negotiations will begin in the coming days. Any optimistic Brexit developments may be the best chance Sterling has of mounting a stronger performance. 

  1. Bank of England (BoE) Decision 

The Bank of England (BoE) will hold its June policy decision on Thursday. If the bank makes any hints that negative interest rates are possible, the Pound could be hit hard and plunge even lower this week. 

GBP/USD Outlook 

With both UK and US handling of the coronavirus concerning investors, coronavirus developments could dominate GBP/USD movement. However, the Pound’s potential for recovery could be limited by Brexit and BoE news. 

Josh Jeffery

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