A -2.6% monthly GDP contraction weighed heavily on the pound as worries over the UK’s economic outlook picked up again.
Sterling started shakily last week, with some initial gains at the prospect of more of the UK economy reopening offset by warnings the UK must prepare for a coronavirus resurgence.
GBP investors welcomed Boris Johnson’s announcement that pubs, restaurants, and hairdressers will be able to reopen from 4 July with the easing of the government’s 2m distancing rule.
However, this was quickly undermined by an open letter from UK health experts to the government, warning more must be done to prepare for a second wave in light of easing lockdown restrictions.
The Sterling sell-off then accelerated through the latter half of the week in the face of renewed Brexit uncertainty.
This was centred on comments from German Chancellor Angela Merkel, who warned the UK will have to ‘live with the consequences’ of a ‘less closely interconnected economy’ with the EU. A notable hardening of her stance towards a no-deal Brexit.
Looking ahead, the focus will remain squarely on Brexit this week as a month of ‘intensive’ trade talks between the UK and EU gets underway in Brussels.
While Boris Johnson has expressed his hopes that a trade deal could be reached in July, few analysts share in his optimism, given the key issues which remain unresolved.
As such, it’s likely we could see the pound extend its recent downtrend so long as the deadlock remains.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)