Pound stalls as UK faces the prospect of new coronavirus restrictions

The pound struggled to find any support on Friday, amidst speculation over the restrictions the UK government is likely to impose as the UK faces its second wave of coronavirus.

Sterling remains mostly flat so far this morning with GBP/EUR stable at €1.0918 and GBP/USD ticking up to $1.2982. GBP/CAD is rangebound at C$1.7086, while GBP/AUD and GBP/NZD hold steady at AU$1.7700 and NZ$1.9130, respectively.

Both Brexit and the potential for new coronavirus restrictions in the UK will be in the spotlight this week, likely infusing fresh volatility into GBP exchange rates.

What’s been happening?

The Pound was stuck in a narrow range at the end of last week’s session, amidst reports the UK government is considering new coronavirus restrictions to help halt a second wave of the virus.

Some of the nationwide restrictions reportedly being discussed include businesses being forced to close earlier and preventing households from mingling again.

The threat of new restrictions potentially weakening the UK’s economic recovery weighed on Sterling sentiment on Friday, and offset stronger-than-expected retail sales figures in August.

The euro was also muted on Friday as Europe’s coronavirus resurgence continued to grow at an alarming rate, prompting suggestions that some parts of the Eurozone may be facing the prospect of a second lockdown.

Concerns over the coronavirus situation in Europe and other parts of the world saw investors favour the safe-haven US dollar at the end of last week, with USD exchange rates further supported by a larger-than-expected improvement in the University of Michigan’s US consumer sentiment index this month.

What’s coming up?

Turning to this week’s session, the resumption of Brexit trade talks between the UK and EU will likely be a key focus for GBP investors this week, particularly as the UK government’s desire to push forward with the internal markets bill could jeopardise talks.

In the meantime, Sterling sentiment could also be influenced by the potential announcement of new coronavirus restrictions in the UK later today.

On the other side of the Channel, the focus this week will be on the Eurozone’s latest PMI releases, with another subdued reading likely to stoke fears the bloc’s economic recovery is stalling and weigh on the euro.

Meanwhile, the focus for USD investors is likely to be on Congress. Will Democrats and Republicans finally reach an agreement regarding the next round of coronavirus stimulus or will further deadlock drag on the US dollar?