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Although the pound sterling strengthened against the US dollar and the euro on Thursday, the risks associated with Brexit and the economic fallout from the COVID-19 pandemic continue to force investors to be wary of the long-term outlook for the pound sterling itself.
The decline rate of the dollar accelerated in July, and on Thursday, it attempted to change the direction of its movement and began to strengthen in the Asian session.
However, the pound rose anyway, reaching four-month highs against the US dollar and successfully testing the key $ 1.30 level, as well as regaining some of its recent losses against the euro.
"Greenback is up against most emerging market currencies, so this is not a typical pound movement with risk," said Thu Lan Nguyen, strategist at Commerzbank.
"In general, sterling remains a weak player in the G10 space, so I expect to see a slight correction at some point," she added.
In July, the pound sterling gained 4.8% against the US dollar and only 0.2% against the euro.
"If the market were confident that the United Kingdom was moving towards a controlled exit from the EU, we would see the pound rise in the cross (EUR / GBP)," said UBS Global Wealth Management.
"The fact that we haven't seen much movement in this cross implies a risk premium in relation to the Brexit negotiations," they added.
The UK and EU have made little progress so far on a post-Brexit trade agreement.
The day before, a representative of the EU banking supervision said that financial institutions that use United Kingdom as a gateway to the EU should work out a plan to serve European customers before the end of the transition period, which ends on December 31, 2020.
The outlook for the United Kingdom is also clouded by the country's high coronavirus deaths.
According to the British Secretary of Health Matt Hancock, the number of COVID-19 cases in the country is no longer decreasing, and at best remains unchanged.
Deutsche Bank experts predict a depreciation of the pound during the rest of the year. They believe that pound shorts are best opened against the euro or yen.
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