Pound Undermined by Brexit and Coronavirus Concerns, US Dollar Fluctuates amid Fed Rate Speculation

GBP/EUR Exchange Rate: Pound Slumps to Two-Week Low on Brexit Concerns 

The Pound Euro (GBP/EUR) exchange rate closed last week’s session on a high, with the pairing rallying on the back of some impressive retail sales figures and robust PMI releases, which included a record jump in growth in the UK’s manufacturing sector in May. 

However, Sterling was unable to consolidate these gains, with the GBP/EUR exchange rate having shed roughly a cent from Friday’s best levels, during the first half of this week’s session as a result renewed Brexit concerns. 

This comes in response to renewed friction between the UK and EU regarding the Northern Ireland protocol, which appears to be holding up broader talks regarding the service sector. 

Looking ahead, the Pound could face additional headwinds through the second half of this week, assuming Brexit talks remain in limbo. 

GBP/USD Exchange Rate: Sterling Undermined by Coronavirus Fears 

The GBP/USD exchange rate has traded in a wide range over the past week, as some positive UK data releases were undermined by domestic coronavirus concerns. 

Coronavirus cases in the UK are creeping higher again and investors are particularly worried about how the spread of the Indian variant could disrupt the government roadmap for easing restrictions. 

There has been considerable speculation that the next stage of easing could be delayed or diluted, and this has unsurprisingly spooked GBP investors. 

Boris Johnson is expected to address the public regarding the Indian variant later this week, with the Pound vulnerable to losses if he hints that the roadmap may need to be revised. 

USD/GBP Exchange Rate: US Dollar Rocked by Fed Speculation 

The USD/GBP exchange rate has been infused by volatility over the past week, in large part due to fluctuating expectations over the timing of the next Federal Reserve rate hike. 

In the second half of last week, the US Dollar received a boost after the minutes from the Fed’s latest policy meeting dropped some tapering hints, with a record print in Markit’s US PMI figures on Friday also offering some support. 

However, this week has seen the US Dollar struggle to find any meaningful gains, particularly after Fed rate expectations were knocked by some dovish comments from Fed policymakers, who dismissed the recent jump in inflation as ‘transitory’. 

Looking ahead, the publication of the PCE price index, the Fed’s preferred indicator of inflation, will be in the spotlight later this week, will a sharp jump in price growth be enough to buoy the US Dollar amidst an increasingly bullish market mood? 

EUR/USD Exchange Rate: Euro’s Gains Tempered by Dovish Lagarde 

The EUR/USD exchange rate has sought to make steady gains over the past week as the appeal of the Euro continues to be bolstered by the improving economic outlook in the Eurozone. 

However, the single currency’s upward trajectory took a considerable knock at the end of last week, in spite of some positive Eurozone PMI figures. 

This setback came in the wake of comments from European Central Bank (ECB) President Christine Lagarde, in which she dismissed speculation the bank could soon start discussing the tapering of its bond purchases. 

EUR investors will be focused on the publication of the Eurozone’s consumer price index over the next week, in which another acceleration of inflation could help to lift the Euro. 

Matthew Andrews

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