Brexit Uncertainty Drives the Pound, US Dollar to Euro Rallies from Two-Year Low: Weekly Exchange Rate Outlook

The Pound to US Dollar and Euro exchange rates fluctuated amid Brexit uncertainty over the last week.

Meanwhile, the US Dollar bounced back from a two-year low against EUR after the Federal Reserve’s growth outlook.

Added to this, gloomy Eurozone data and coronavirus concerns dented the Euro to US Dollar exchange rate.

Moving forward, the Fed’s Jackson Hole Symposium this week will drive US Dollar movement against GBP and EUR, as well as market sentiment.

GBP/EUR Exchange Rate: Pound Vs Euro Rallies on Brexit Deal Hopes

The Pound to Euro exchange rate traded in a wide range over the past week as fresh Brexit uncertainty rocked Sterling.

This follows the conclusion of the latest round of Brexit trade talks between the EU and UK at the end of last week.

Talks remain deadlocked causing dismay in markets and spooking GBP investors. This intensified on comments from EU chief negotiator Michel Barnier, in which he warned that a deal ‘seems unlikely’ at this stage.

However, despite these concerns the Pound to Euro exchange rate has still managed to appreciate over the past week. This lead to some analysts warning that GBP investors may be under-pricing the risk of a no-deal Brexit.

Looking ahead, in the absence of any notable economic releases, GBP investors will look to a speech by Bank of England (BoE) Governor Andrew Bailey for fresh impetus this week.

This could stoke some additional volatility in Sterling later this week if Bailey should make any indication the bank is still exploring the possibility of negative interest rates.

GBP/USD Exchange Rate: Pound Slips on Unemployment Fears

The Pound US Dollar exchange rate trended lower over the past week. GBP struggled to hold its ground against a stronger US Dollar amidst concerns over the underlying strength of the UK economy, particularly in regards to employment.

The UK’s latest PMI release at the end of last week highlighted rising unemployment worries.

While August’s preliminary PMI’s showed that economic activity in the UK struck a six-year low, it indicated that the pace of job cuts is gathering pace, something which could curb the UK’s economic recovery.

Going forward, these concerns over the UK’s jobs market are only likely to grow over the next week as the start of September could herald a wave of redundancies as the UK’s furlough scheme starts to be wound down.

USD/GBP Exchange Rate: US Dollar Rallies on Federal Reserve’s Gloomy Growth Outlook

The USD/GBP exchange rate ticked higher over the past week, with the pairing rallying from a multi-month low in the second half of last week in skittish trade.

The publication of the minutes from the Federal Reserve’s July policy meeting triggered the US Dollar’s gains. Investors flocked to the safe-haven ‘Greenback’ after the Fed’s dour growth outlook and warning of ‘elevated uncertainty’ due to the coronavirus pandemic.

While these gains were tempered by data showing that US initial jobless claims rose back above 1 million in the week ending 15 August, some positive data releases on Friday helped the US Dollar close last week as the top performer.

However the US Dollar has so far struggled for direction this week as investors are unwilling to make any aggressive bets on the currency ahead of the Fed’s annual Jackson Hole Symposium.

The Fed traditionally uses the event to send a clear message on its monetary policy, but the event could have even more urgency than normal in light of the pandemic’s ongoing economic impact.

EUR/USD Exchange Rate: Euro to US Dollar Retreats from Two-Year High

The Euro to US Dollar exchange rate fell back from a two-year high over the past week as the Eurozone’s recent economic recovery has already showed signs of stalling.

This was initially triggered by a weaker-than-expected consumer price index, with the Eurozone slipping deeper into a state of deflation last month than previous thought.

However, the most disconcerting release for EUR investors was August’s preliminary PMI figures.

These printed well below expectations and indicated that the bloc’s recovery may already be starting to sputter out amid the resurgence of coronavirus cases across Europe.

Looking ahead, Europe’s coronavirus situation is likely to remain a key focus for EUR investors, with a further deterioration likely to put renewed pressure on the single currency.

Matthew Andrews

Contact Matthew Andrews