29/06/2020

Sterling falls to June lows against EUR and USD


GBP

Sterling fell to June lows against both the EUR and USD on Friday as both weaker investor risk appetite and doubts the UK will yield any progress from this weeks UK-EU trade discussions contributed to a weaker GBP.

Since the UK’s decision to leave the European Union the GBP has been trading in line with riskier assets. Sterling has often appreciated in line with market sentiment favouring risk-on trades and traded lower amid risk-off sentiment. A rise in coronavirus infections in the US, China, India, Mexico and South Africa in the past week have raised fears of a second wave and threatened to delay the global economic recovery from the COVID-19. As a result, market sentiment shifted back to risk-off on Friday which saw the GBP move lower in favour of safe-haven assets.

Whilst sterling’s risk-on reputation has contributed to a weaker GBP, the GBP is also being kept lower by uncertainty over a UK-EU trade deal. With days left to meet the EU’s deadline to agree an extension, over the weekend Boris Johnson reiterated his position to the Polish Prime Minister stating “that the UK remain ready to leave the transition period in an Australian style deal if a free trade deal cannot be reached with the EU”. This follows UK Brexit Chief David Frost warning to Michel Barnier last week to “get real” ahead of face-to-face discussions this week. Whilst Frost has reiterated his intent to negotiate in good faith, Frost has warned Barnier that some of the EU’s unrealistic positions need to change with UK sovereignty over laws, courts and fishing waters not up for discussion.

USD

The dollar rallied on Friday benefiting from safe-haven flow as investor caution grew that a V shaped recovery for the worlds biggest economy is in doubt amid a spike in coronavirus infections.

Both Texas and Florida have been the hardest hit leading the way for new infections. On Friday both states re-introduced lockdown measures asking bars to close and increased restrictions on restaurants.

Key announcements

09:30 – GBP – Bank of England Governor Bailey speaks
12:00 – EUR – Harmonized Index Consumer prices (GER) (YoY) (JUL)


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