Pound Rocked by New Covid-19 Strain, US Dollar Firms in Risk-Off Trade

GBP/EUR Exchange Rate: Pound Touches Three-Month Low on Coronavirus Fears

After trading robustly through the second half of last week, the Pound to Euro (GBP/EUR) exchange rate struck a new three-month low at the start of this week.

The collapse of the Pound came amidst considerable fears over the emergence of a more viral strain of the coronavirus in the UK, which prompted many EU nations to impose a travel ban on the country, with GBP investors particularly unnerved by a 48-hour freight ban from France.

However, the sell-off proved to be short-lived, with Sterling clawing back a good portion of its losses after France softened its travel ban, allowing goods to start flowing across the Channel again, with the upside in GBP exchange rates further bolstered by an upward revision to UK GDP in the third quarter.

With the mutated coronavirus strain now spreading quickly throughout the UK, the question is now whether the UK will need to impose tougher restrictions to help bring case numbers down again, with the announcement of another lockdown likely to weigh on Sterling sentiment.


GBP/USD Exchange Rate: Pound Rocked by Brexit Uncertainty

In addition to coronavirus fears, the GBP/USD exchange rate has also been rocked by Brexit developments over the past week.

Through the second half of last week, this saw GBP/USD strike its best levels since May 2018, amid optimism that the UK and EU could agree upon a post-Brexit trade deal.

However, this gave way to a significant sell-off at the start of this week after the two sides missed Sunday’s deadline.

While both sides agreed to continue talks, GBP investors remain pessimistic on the chances of a deal, especially after EU members reportedly rejected a major concession made by Boris Johnson in regard to fishing rights.

With time fast running out for the two sides to find a deal, it seems safe to assume that the Pound is going to remain extremely volatile through to the end of 2020.


USD/GBP Exchange Rate: US Dollar Rebounds amid Market Panic

The USD/GBP exchange rate trended broadly lower through the second half of last week, as US stimulus optimism helped to bolster market sentiment and temper demand for the safe-haven US Dollar.

However, we saw a dramatic shift in market sentiment at the start of this week, with the news that a new, more infectious strain of the coronavirus was rapidly spreading throughout the UK, sending panicky investors flocking to the US Dollar.

But the ‘Greenback’ failed to sustain its best levels for long, following the approval of a $892bn bipartisan stimulus bill, which despite opposition from Donald Trump regarding the size of stimulus cheques, was still enough to cheer market sentiment.

Looking ahead, any movement in the US Dollar through to the end of 2020 is likely to be driven mostly by market sentiment, potentially leading to another rally in the safe-haven currency in light of potential coronavirus and Brexit uncertainty.


EUR/USD Exchange Rate: Euro Undermined by New Covid-19 Strain

The EUR/USD exchange rate rocketed higher through the second half of last week, with the Euro benefiting from some stronger-than-expected PMI figures as well as the broad weakness of the US Dollar.

However, the Euro was unable to sustain this momentum at the start of this week, as fears that the UK’s new coronavirus strain will spread to the continent took a heavy toll on the single currency, offsetting some upbeat consumer sentiment figures.

While the Euro attempted to rally, this proved short-lived after it was confirmed that the new strain of Covid-19 had been detected in Europe.

In the absence of any notable Eurozone data, the focus for EUR investors through the coming week will likely be on coronavirus headlines as they look for any signs that the new strain is starting to spread rapidly.

Matthew Andrews

Contact Matthew Andrews