The rally seen for the pound this week has stalled as we enter Wednesday, with the Euro capturing headlines following the passing yesterday of the EU coronavirus recover programme, worth over €750 billion in a series of loans and grants to support countries badly affected by the pandemic.

Another key piece of news this morning is a report in the Daily Telegraph that Boris Johnson is very close to giving up on a trade deal with the EU, which might also be another reason for the weakness in the pound this morning.

Initially, the Euro was weaker yesterday as markets questioned the impact of the pandemic scheme but as the day wore on, the perception turned more positive, and so far today the Euro is proving a dominant force against both the pound and the US dollar. GBPEUR has been pushed back down to interbank lows of 1.1019 this morning, whilst the EURUSD pairing has broken 1.15, a 1 ½ year high on the interbank rate for the Euro against the greenback.

What news and events may move exchange rates this week?

Part of the moves in the FX markets are also to do with weakness of the US dollar, in response to continued concerns over the US handling and suffering at the hands of the pandemic. Donald Trump said yesterday the pandemic will ‘get worse before it gets better’, in a marked shift of tone from previous comments that the virus might ‘just disappear’ only a few weeks ago. Markets are patting the Europeans on the back, whilst taking some fright at the continued uncertainty in America.

Whilst the pound is lower against the Euro, down from the highs of just over 1.11 seen yesterday, the pound is holding its nerve against the US dollar at over 1.27, in response to this US dollar weakness.

The US dollar weakness has also had a marked effect on the antipodean currencies too supporting these currencies, with GBPAUD interbank rates down to 1.7765 and GBPNZD 1.9071, both on their interbank pairings. This takes GBPAUD very close to a 1 year low, presenting a very good fresh opportunity for Australian dollar sellers buying pounds.

What news and events should we be on the lookout for today in the currency markets?

Frustratingly for those buying a foreign currency with the pound, sterling started the week well, boosted this week by news of a Coronavirus vaccine and an upturn in sentiment in the fight against the pandemic, with investors spotting an opportunity in the pound that some analysts had recently labelled as ‘oversold’.

With the currency markets being just a reflection of investors attitudes towards certain situations, and not always a true reflection of the facts and reality of those situations, the potential for swings higher and lower is often present as we have seen lately for the pound.

Today there is limited UK data so other more global events may influence the pound, indeed there is no real global data of significance although Christine Lagarde, President of the ECB (European Central Bank) will give a speech at 14.15 today.

The global events referred to above include more news on how the world is tackling the Coronavirus, and also potentially news on Brexit as headlines continue to influence sentiment.

Brexit talks begin next week and whilst the headlines from the Daily Telegraph report are not particularly encouraging, only a few days ago investors were reading into comments from the UK chief Brexit negotiator David Frost, the UK and EU were to ‘overcome significant differences’ and news reports suggesting a landing zone on a deal was being targeted. This just shows how quickly the messages can change and the pound remains sensitive to such news.

Will the Optimism and Positivity for the Pound Continue?

Lack of clarity might keep the pound in the recent ranges

Whilst no one can say exactly what will happen in the currency markets, we can look to past behaviour to provide some guidance to future movements. With there being many mixed signals for both positivity and negativity on a range of issues including the pandemic and also Brexit, investors want to avoid being wrong footed.

On Brexit we could still conceivably see a sudden agreement or deal in the coming weeks and month, or we might get further confirmation that the UK and EU are very much headed to a no-deal.

On the COVID-19 pandemic, markets are still anxious of a stronger second wave, particularly as the warmer summer months in Europe come to an end, with many forecasters anticipating a tough winter when the usual flu season kicks in.

The flipside positive outlook on Coronavirus sees a vaccine made available and continued greenshoots in the economic recovery, which may provide further evidence of a gentle return to normality and neutralise any negative sentiments mentioned above.

All in all, there is still plenty ahead to monitor in the FX markets and plenty of different directions that these two key topics, Brexit and the Coronavirus may take, to further influence sentiment and currency market movements.

Thank you for reading and please contact us to learn more about what is driving your exchange rate.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.