GBP/EUR slides to two-week low in response to Brexit concerns

The pound fell back on Tuesday as a result of renewed Brexit friction between the UK and EU over the Northern Ireland protocol.
 
Sterling appears to have stabilised this morning, with GBP/EUR flat at €1.1545 and GBP/USD steady at $1.4143. GBP/CAD is rangebound at C$1.7048, while GBP/AUD and GBP/NZD have plummeted to AU$1.8174 and NZ$1.9355, respectively.
 
Coming up, will a prevailing risk-on mood help to buoy the euro at the expense of the US dollar?
 

What’s been happening?

The pound was placed on the defensive yesterday, as Brexit uncertainty stemming from the UK and EU remaining at odds over the Northern Ireland protocol undermined Sterling sentiment.
 
The UK government hit back at European Commission President Ursula von der Leyen on Tuesday after she stated there can be no changes to the agreement signed last year.
 
Downing Street said it is ‘disappointed’ by von der Leyen’s stance, with the spat spooking GBP investors and pushing the GBP/EUR exchange rate to a two-week low as it leaves talks between the two sides regarding the service sector in limbo.
 
The US dollar also drifted lower on Tuesday, as dovish Federal Reserve expectations prompted another fall in US Treasury yields.
 
Comments from Chicago Fed President Charles Evans, in which he welcomed the rise in inflation and reiterated the bank’s view that the recent surge is ‘transitory’, helped to fuel this narrative.
 
The euro, meanwhile, firmed yesterday after Germany’s latest business sentiment index beat expectations and printed at a three-year high, offsetting the earlier release of the country’s latest GDP figures, which reported a larger-than-expected contraction of growth in the first quarter.
 

What’s coming up?

Looking ahead, we may see the pound extend its losses through today’s session as ongoing Brexit concerns and the continued rise in UK coronavirus cases are likely to leave Sterling vulnerable to selling.
 
Meanwhile, in the absence of any notable Eurozone data releases, the direction of the euro is likely to be determined by the bloc’s economic outlook. Will the EU’s vaccine rollout and lifting of more coronavirus restrictions throughout the Eurozone help the single currency to maintain its recent bullish momentum?
 
At the same time, the US dollar may continue to trend lower through today’s trading session, assuming that the recent risk-on mood continues to prevail.