EUR/GBP bears watchful over COVID-19 and Brexit risks

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  • EUR/GBP has slowed on the downtrend into holiday thin markets. 
  • COVID-19 cases are being closely monitored as both the UK and mainland nations ease restrictions further. 
  • Brexit is likely to weigh on the pound for the foreseeable future as time is running out. 

At the time of writing, EUR/GBP trades at 0.9014 within a 0.9002 and 0.9031 range. The pound is feeling the pressures of Brexit uncertainties again.

Meeting between EU and UK top negotiators cancelled sinks the pound

Almost halfway through the transition period, there is not much to show from UK-EU negotiations and tomorrow’s meeting between EU and UK top negotiators cancelled.

The news has been a weight on the pound, susceptible to risk-off flows in the malaise which is Brexit for markets and investors. 

Given how tight the time is for a new UK-EU trading arrangement to emerge by the year’s end, the pound is likely to be pressured for the forcible future, unless there is a major turnaround in the USD.

However, given that both sides are “ostensibly more committed to reaching an agreement than previously and have agreed to an intensification of talks in the coming weeks, analysts at Standard Chartered argue.

The analysts at Standard Chartered Global Research put down their base case scenario as follows:

  • A Brexit deal has become our base case again as both sides intensify trade talks.
  • Negotiators face a tighter timetable than 2019 and any deal would require concessions from both sides.
  • Multiple issues could still derail negotiations, so a no-deal outcome remains a distinct possibility.
  • Even with a deal, we see trade frictions emerging in 2021; a no-deal could severely impact 2021 growth.
  • We think the market is too downbeat on a potentially good outcome; we see GBP-USD at 1.40 by year-end.

Investors fear a second wave on UK soil

Meanwhile, the with initial disruption to supply chains is inevitable, and the risk of this coinciding with a renewed COVID-19 outbreak over winter months risks putting the brakes on the economic recovery. 

As it stands, there are concerns that the UK’s virus situation will get out of hand in recent days following a spell of good weather which the population went out to enjoy in droves, and in many instances not obeying the social distancing measures. 

Prime Minister Boris Johnson has announced a series of measures to take effect from 4 July, easing the lockdown in England.

Restaurants, pubs and cafes in England will also be allowed to reopen, providing they follow safety guidelines.

All hospitality indoors will be table service only, and contact between staff and customers will be limited, they are still worried that it is too soon and that the UK government had not done enough in the first place to prevent the outbreak. 

If there is anything of s similar repeat seen on US soil n some states, the pound is likely to come under immense pressure as investment flows leave the Island. 

meanwhile, across the channel, this week has been a key milestone for several European countries.

European governments across the continent have further eased lockdown measures brought in to contain the spread of the coronavirus in March:

Spain and Portugal have reopened their mutual border for the first time in months. Belgium moved into phase four of its lockdown easing, with cinemas, casinos and concerts opening their doors and the social bubbles expanding from 10 to 15 people. The Netherlands and Austria also both lifted more of their own restrictions.

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