US dollar rebounds from two-year low as the global recovery begins to show cracks

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The second half of August has been characterised by jittery trade in the currency market, amidst growing concerns over the trajectory of the global recovery.

During this volatility we have seen GBP/EUR tick up from 1.10 to 1.11 as EUR/GBP retreated to 0.89. Meanwhile, GBP/USD climbed from 1.30 to 1.31, whilst EUR/USD has retreated to 1.18, having briefly struck a two-year high of 1.19.

What's been happening?

While the pound has trended higher through the past couple of weeks, this has not been without some hurdles, with Sterling tempered by renewed Brexit jitters and concerns of an impending unemployment crisis in the UK.

The US dollar struck a two-year low in mid-August but has been quick to bounce back, as demand for the safe-haven currency has been stoked by concerns that there are still significant risks to global growth.

In the meantime, the euro has been giving ground on fears Europe's coronavirus resurgence could hamper the Eurozone's recovery, which was highlighted by the stalling of economic activity in August's preliminary PMIs.

What do you need to look out for?

Looking ahead, the pound may face some headwinds going forward as the winding down of the UK's furlough scheme next month looks set to unleash the next wave of redundancies.

At the same time, the euro faces the prospect of further losses if Europe's coronavirus situation continues to deteriorate.

Finally, we may see US political risk begin to increasingly influence the US dollar in the coming weeks as campaigning begins to ramp up ahead of November's presidential election.

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