Blog

Market Update

• Posted by currencies in Brexit, coronavirus, Economy, GBP, Prime Minister, Sterling, UK, Uncategorised
• August 5, 2020
• No Comments

Sterling edged lower erasing earlier gains as the U.S. dollar moved briefly higher, while fears of a second wave of virus infections and a Bank of England policy meeting later this week capped the pound’s advance.

The move lower reversed a trend earlier in the session where the pound had been advancing towards a five-month high hit last week versus the dollar.

The pound’s recovery has been impressive in the past few weeks. It registered its biggest monthly rise in more than a decade in July even though prospects of a breakthrough in Brexit negotiations with Europe before a December deadline remain elusive.

The trigger might be the virus situation in the UK that is looking once again quite worrying in the sense that we are hearing about the possibility of the UK government again imposing economic restrictions. The economic outlook for the UK is already quite grave and this would naturally add to that.

A second wave of the pandemic could be twice as bad as the initial outbreak in Britain, a new study claimed.

British Prime Minister Boris Johnson said last week he would postpone the next stage of lockdown easing for at least two weeks due to a pick-up in COVID-19 infection rates.

Signs that dollar weakness have been the major driver of pound gains can be seen from the performance of the British currency versus the euro and the Japanese yen.

While it has strengthened nearly 15% versus the U.S. currency since the March lows, it has risen less than 6% against the euro and less than 12% versus the yen in the same period.

In the United States, Democrats in the U.S. Congress and White House negotiators are in talks on a new coronavirus relief bill after a deadline was missed on Friday to extend enhanced unemployment payments during the pandemic.

Any delay in unveiling more stimulus measures would fuel another round of selling the dollar.