Sterling lost some ground yesterday across the board, though did manage to finish the day slightly up versus the euro. The slight drop was influenced by both a stronger US dollar and basic seasonal flows, as the pound enters what is typically one of its worst-performing months.

UK financial institutions yesterday bid for and received the highest volume of US dollars since April 1 at the daily BoE auction for seven-day dollar funding, as the market appears to be adopting an increasingly bearish attitude toward the pound. The currency continues to be weighed down by Brexit and lockdown uncertainty, with the government due to review restriction policy this week. The BoE meet on Thursday to attempt to quantify the economic impact of the crisis, which could leave sterling in a vulnerable position.

As expected, economic output continues to decline, with British new-car sales slumping by around 97% in April to their lowest since 1946.

With no economic releases today, or government statements due, the pound will see little domestic impact.

GBPUSD opened at 1.2445 and dipped to close at 1.2420

GBPEUR opened at 1.1367 and was up by the close, finishing at 1.1405

The US dollar made some gains yesterday, bolstered by waning risk appetite amid fears that last year’s dispute with China will be reignited, this time over the coronavirus. The US yesterday launched a salvo against China, saying that there was a significant amount of evidence that the virus emerged from a laboratory in Wuhan, which caused analysts to debate how the US might seek to retaliate, perhaps with further trade tariffs, or cancelling the payments on China-owned US Treasuries. However, officials have since said that the US was not looking to take any punitive measures.

The dollar index edged up 0.1% to 99.55, not far away from a near two-week high of 100.83 in late April. This afternoon sees the release of non-manufacturing PMI data.

The euro, meanwhile, is looking vulnerable after being hit by a court challenge from German academics to the European Central Bank’s bond buying programme. A ruling is due later today and while an outright rejection of the German Bundesbank’s participation in the asset purchases appears unlikely, anything less than a clear-cut defeat of the challenge could hit the single currency.

EURUSD opened at 1.0948 and declined, closing at 1.0903

In Australia, the Reserve Bank left its targets for the cash rate and three-year government bond yields unchanged at 0.25%, but forecast the economy would suffer its largest ever contraction in the first half of the year. The currency has rallied this week. helped by a drop in coronavirus cases and a lifting of some local restrictions.