Pound fluctuates on mixed Brexit headlines

The pound fluctuated on Friday following mixed Brexit reports over negotiations continuing in UK-EU trade talks, before GBP recovered its losses by the end of the session.

Sterling is strengthening this morning, with GBP/EUR rising at €1.1077 and GBP/USD gaining at $1.2975. GBP/CAD is also higher at C$1.7102, while GBP/AUD and GBP/NZD tick higher at AU$1.8277 and NZ$1.9580, respectively.

With coronavirus concerns likely to continue driving markets this week, can we expect the US dollar to remain in vogue through much of the session?
 

What’s been happening?

The pound was up and down like a yo-yo at the end of last week’s session as Sterling sentiment was flipped multiple times by conflicting Brexit headlines.

Sterling dropped sharply after UK Prime Minister Boris Johnson told the UK to get ready for an Australia-style trade deal, while a spokesperson suggested talks should end unless the EU change their position.

However, the pound recovered its losses as EU officials appeared to confirm talks would continue, something Boris Johnson did not confirm either way but that the UK and EU negotiators will discuss today.

The US dollar, meanwhile, began to run out of steam on Friday as demand for the safe-haven currency was undermined by news that US pharmaceutical giant Pfizer may apply for authorization of a coronavirus vaccine in November.

This downturn in the US dollar offered some breathing room to the euro at the end of last week, although the upside in the single currency was capped by ongoing concerns over Europe’s ‘alarming’ spread of coronavirus infections.
 

What’s coming up?

Turning to this week’s session, it seems safe to assume that coronavirus headlines will continue to act as a key catalyst in currency markets.

Therefore, it’s likely we will see investors continue to favour the safe-haven US dollar, so long as second wave fears continue to fuel concerns over the trajectory of the global recovery.

Much of the attention is likely to be centred on Europe, which currently seems to be deep into its second wave of infections, potentially pushing many countries on the continent into considering a second lockdown.

EUR investors are likely to pay particular attention to this week’s PMI releases from the Eurozone as evidence of a slowdown this month is likely to fuel concerns growth in the bloc could contract again in the last quarter.

Finally, we expect trade in the pound to remain choppy this week as Brexit uncertainty continues and speculation the UK could be facing a short ‘circuit breaker’ lockdown are likely to weigh on Sterling sentiment.