Euro weakens on virus woes, pound falls on Brexit stalemate

The euro, which hit two-year highs against the dollar this week, fell on Friday, August 21, as data showed eurozone economic activity slowing in August against a backdrop of rising coronavirus cases.

The pound also fell against the dollar as the European Union and Britain traded blame for the lack of progress after the latest round of post-Brexit trade talks, with Brussels warning that a deal looked unlikely.

Sterling is being punished “by Brexit talks which seem to be going nowhere,” said Neil Wilson, analyst at Markets.com.

“The two sides are still far from reaching agreement on key terms” of their post-Brexit relationship.

In the eurozone, IHS Markit’s closely-watched Purchasing Managers’ Index fell to 51.6 points from 54.9 points in July, holding just above the key 50-point threshold indicating growth.

“The euro’s rally has come to a halt this week on growing concerns that [the] coronavirus is coming back strongly in parts of Europe and will hurt the economic recovery,” said Fawad Razaqzada, market analyst with ThinkMarkets.

European stock markets ended the week in the red, with London’s FTSE slipping 0.2% on Friday, Frankfurt’s DAX 30 shedding 0.5%, and Paris’s CAC 40 down 0.3%.

Wall Street records

But the gloom did not extend across the Atlantic, where Wall Street ended the week with new closing records for the S&P 500 and Nasdaq, while the Dow rose 0.7%.

The tech sector has been a consistent bright spot amid the severe coronavirus downturn in the United States, and the Nasdaq was up 2.7% overall for a week that saw Apple become the first company to hit $2 trillion in market value.

“The market is still attracted to those tech names as concerns over economic growth continues,” said Quincy Krosby of Prudential.

While vast central bank support has helped fan a surge in equities globally, data showed that 1.1 million Americans filed new claims for unemployment benefits last week, and the White House still has not reached an agreement with Congress on additional aid, reinforcing concerns about the world’s largest economy.

But some sectors have plowed ahead, with the National Association of Realtors reporting a record 24.7% surge in US existing home sales in July.

Vaccine hopes

The market rise also has been fueled by optimism that a COVID-19 vaccine can be found.

Pfizer and BioNTech SE said a vaccine they are working on could be up for regulatory review by October and, if all goes well, the jab could be ready to roll out as soon as November.

A vaccine for a disease that has already killed nearly 800,000 people and infected more than 22 million is seen as paramount.

News a treatment could be coming soon “has raised some expectation…that life around the world could return to normal sooner than expected,” said AxiCorp’s Stephen Innes.

“From a stock market concern, it’s great for growth assets as planes will fly, the oil will flow, and laggard industries will emerge from the COVID-19 fog and their stocks will soar.”