GBP/EUR dips below €1.10 on Brexit and coronavirus uncertainty

Philip McHugh October 21st 2020 - 2 minute read

Trade in the pound was a little mixed yesterday as Brexit and domestic coronavirus concerns continued to weigh on investor confidence.
Sterling appears to be firming so far this morning, however, with GBP/EUR buoyed at €1.0975 and GBP/USD climbing to $1.3015. GBP/CAD has ticked up to C$1.7055, while GBP/AUD and GBP/NZD hold steady at AU$1.8396 and NZ$1.9681 respectively.
Turning to today’s session, will an uptick in inflation be enough to get the pound back on its feet?

What’s been happening?

The pound was left subdued through yesterday’s trading session, with Brexit and coronavirus uncertainties knocking Sterling sentiment.
With Manchester entering the strictest tier of coronavirus restrictions, and speculation that a second lockdown is on its way, GBP investors are growing increasingly concerned about the trajectory of the UK’s economic recovery.
Applying additional pressure on the pound yesterday were comments from Bank of England (BoE) policymaker Gertjan Vlieghe as he warned unemployment is likely to exceed the BoE’s previous forecasts.
The euro, meanwhile, benefited from an improvement in market sentiment on Tuesday, with the single currency finding additional support from Germany’s producer price index, which beat expectations with a 0.4% rise in September.
At the same time, the US dollar trended lower through yesterday’s European trading session as demand for the safe-haven currency was dented by hopes for a US stimulus breakthrough.

What’s coming up?

Kicking off today’s session was the publication of the UK’s consumer price index.
September’s figures reported that domestic inflation crept up to 0.5%, having plunged to a four-year low in August as a result of the government’s Eat Out to Help Out scheme.
However, this still leaves inflation well below the Bank of England’s target rate of 2%, and with Brexit and coronavirus uncertainty still dominating investor sentiment, any upside in the pound looks limited today.
Across the Channel, Europe’s struggle to contain its second wave of coronavirus infections is likely to remain a key focus for EUR investors and could see the euro stumble today if governments impose more restrictions.
Meanwhile, the US dollar looks on track to extend its losses today, amidst growing optimism for US fiscal stimulus.

Written by
Philip McHugh

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