- Bounce-back not sustainable says Nomura

- Stock market performance remains key to GBP outlook

- Scale of current recession could jolt markets

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- Spot GBP/EUR rate at time of writing: 1.1358

- Bank transfer rates (indicative): 1.1060-1.1140

- FX specialist rates (indicative): 1.1200-1.1256 >> More information

- Spot GBP/USD rate at time of writing: 1.2267

- Bank transfer rates (indicative): 1.1940-1.2024

- FX specialist rates (indicative): 1.2100-1.2160 >> More information

Pound Sterling rallied to a fresh high of 1.1441 in the week ending March 03, ensuring that a short-term uptrend that has been in place since March 19 remains intact.

However, the soft close on Friday which saw the Pound pare gains against most of the world's major currencies also saw the Pound-to-Euro exchange rate close the week at 1.1354, suggesting Sterling's positive momentum could be in danger of fading.

We are therefore wary that the next week could see some further consolidation in Sterling, but critical to how Sterling performs will be the overall performance of global markets, as we have established market sentiment is a critical driver of Sterling in these coronavirus-impaired times.

"The bounce back in the Pound is not something we expected to be sustained for so long," says Jordan Rochester, FX Strategist at Nomura. "Going forward we would still highlight that the market holds net GBP longs, which if liquidated in thin liquidity could see this recent outperformance come to an abrupt end."

The stabilisation in global markets since mid-March comes courtesy of an incredibly sizeable intervention by the U.S. Federal Reserve and appears to have played positively for Sterling.

Sterling and global markets have stabilised together, therefore for Sterling to retain a constructive tone we would need the global investor community to remain relatively optimistic that brighter days lie ahead, and we would need global financial markets to remain functional.

Above: The GBP/EUR and S&P500 have shown a strong correlation, suggesting global investor sentiment is key for Sterling.

We are however wary that markets are defying gravity at the present time, with the latest official employment numbers out of the U.S. suggesting a huge surge in unemployment is underway that might not be fully appreciated by market participants.

Non-farm payrolls for March read at -701K, which is a deeper decline than the -100K that economists predicated. The unemployment rate rose to 4.4%, up from the previous month's 3.8%.

"With the survey week for this report coming before the monster initial jobless claims prints, today's release wouldn't have picked up the significant weakening of the labour market more recently, which makes the weaker than expected results more disappointing," says Andrew Grantham, CIBC Markets.

"Given the scale of job losses implied by those weekly claims figures, the unemployment rate will likely move above 10% in short order in Q2," adds Grantham.

The question is whether or not the investor community is adequately priced for the substantial economic shock ahead.

Market participants remain focussed on the economic toll of the coronavirus pandemic, with a lack of certainty as to how far the collapse will extend proving to be a key factor in ensuring traders maintain a defensive stance.

The British Pound was seen giving back some of its advances against a host of different currencies in line with a softening of investor sentiment, with the losses taking some of the shine off what has been a relatively strong week for the UK currency.

Looking ahead, how markets trade next week will determine whether the Pound's recent recovery run can extend or whether downside pressures start to build again.