pound receeding

Pound Slumps on New Coronavirus Restrictions, Risk-Off Trade Boosts USD

The Pound fell sharply this week after the threat of a second wave of coronavirus and new restrictions weighed on Sterling sentiment and the UK’s economic outlook.

Meanwhile, the Euro suffered from signs the Eurozone recovery is running out of momentum and the ongoing surge in Covid-19 cases.

Pound Slides as New Restrictions Threaten Recovery

GBP/EUR – Unchanged on the week’s opening levels

GBP/USD – Down two cents on the week’s opening levels

The Pound plunged at the start of the week after the UK government announced new coronavirus restrictions, while fears grow measures may escalate over the next six months and slow the UK’s economic recovery.

However, the Pound’s losses were limited by some Brexit optimism, Bank of England governor Andrew Bailey talking down the use of negative interest rates, and Chancellor Rishi Sunak’s job support scheme to limit job losses in the coming months.

Next week’s session could be as volatile for GBP exchange rates as rising coronavirus cases threaten to bring stricter measures, and Brexit uncertainty continues.

Euro Slips as Eurozone Recovery Stalls and Covid-19 Cases Surge

EUR/GBP – Unchanged on the week’s opening levels

EUR/USD – Down two cents on the week’s opening levels

The Euro weakened this week on fears a second wave of coronavirus across Europe will undo the recovery progress made through the summer.

These concerns intensified after the preliminary PMI data for September indicated the Eurozone is at risk of slipping back into recession, with service sector activity contracting.

The Euro’s downside could extend through next week as the bloc’s economic recovery is threatened by stricter restrictions in Europe while the Eurozone’s consumer price index is forecast to show another month of deflation.

US Dollar Buoyed by Risk-Off Trade

USD/GBP – Up one pence on the week’s opening levels

USD/EUR – Up one cent on the week’s opening levels

The US Dollar surged through the week as risk-off trade pushed the safe-haven US Dollar higher.

Market sentiment soured on rising coronavirus cases in the UK and Europe while concerns over global recovery and renewed US-China tensions also contributed to the loss of risk appetite. However, the US latest initial jobless unexpectedly rose last week, tempering USD gains.

Looking ahead, the ‘Greenback’ will likely continue benefitting from safe-haven demand as Covid-19 cases show no sign of abating. Added to this, USD could add to its gains if the latest US payroll release indicates unemployment continued falling last month.

Australian Dollar Dives on Loss of Risk Appetite

AUD/GBP – Down one pence on the week’s opening levels

AUD/USD – Down three cents on the week’s opening levels

The Australian Dollar fell sharply through this week’s session as risk-off trade triggered a sell-off in the risk-sensitive ‘Aussie’.

Added to the renewed coronavirus concerns sell-off, the Reserve Bank of Australia (RBA) signalled a lower AUD exchange rate would benefit the Australian economy, which weighed on the Australian Dollar.

Without a change in the global economic outlook or notable progress in containing the spread of coronavirus cases surging, the Australian Dollar will likely remain vulnerable to further losses while a risk-off tone prevails.

Key Data

Sep 29 GBP Brexit Talks

Sep 29 EUR German Inflation Rate (Sep)

Sep 30 USD Presidential Debate

Sep 30 EUR Inflation Rate (Sep)

Sep 30 USD GDP (Q2)

Sep 30 GBP GDP (Q2)

Sep 30 AUD ANZ Business Confidence (Sep)

Oct 1 EUR Unemployment Rate (Aug)

Oct 1 GBP Manufacturing PMI (Sep)

Oct 2 USD Non-Farm Payrolls (Sep)

Oct 2 AUD Retail Sales (Aug)

Oct 3 USD ISM Manufacturing PMI (Sep)