Pound to US Dollar Exchange Rate Climbing despite Lack of Sterling Support
The coronavirus pandemic continues to worsen in Britain, but the Pound Sterling to US Dollar (GBP/USD) exchange rate is climbing. The US Dollar (USD) was knocked lower by a rebound in risk-sentiment overnight.
Since opening this week at the level of 1.1650, GBP/USD briefly dipped but is now advancing. GBP/USD has gained an impressive two cents since yesterday’s recovery picked up speed. The pair currently trends near the level of 1.1893.
However, GBP/USD remains well below last week’s opening levels. What’s more, GBP/USD is still only around four cents higher than the three-decade low of 1.1431 seen last week.
Today’s primary movement is being caused by fresh market appetite for slightly riskier assets. This comes as markets digest a massive US fiscal stimulus deal finally reached yesterday.
Pound (GBP) Exchange Rates Benefitting from Risk-Sentiment despite UK Outlook
Britain’s coronavirus outlook has worsened significantly this week. With the number of cases in the country surging, the nation has been put on lockdown.
Despite this though, the Pound (GBP) has been enjoying a rebound in demand from its recent lows.
Investors are buying the Pound from its cheapest levels due to both domestic and global factors.
Hopes for more UK fiscal stimulus are making Pound investors a little more optimistic. On top of that, market demand for currencies perceived as riskier has risen due to US news.
According to Mark Haefele, CIO at UBS Global Wealth Management:
‘We think the actions of monetary and fiscal policymakers should help us prevent a Global Financial Crisis (GFC) style credit crunch. Tuesday’s sharp equity rally shows that the combination of central banks’ entire GFC playbook and substantial, direct fiscal support can be well received by markets.’
US Dollar (USD) Exchange Rates Continue to Tumble as Safe Haven Demand Softens
The US Dollar had been surging in recent weeks on the back of market demand for safe havens.
The US Dollar is a safe currency and is also popular as a funding currency, used for financing transactions and deals. Amid the worsening coronavirus pandemic, the US Dollar was champion and pushed many major rivals much lower.
However, this week’s US stimulus news has marked an end to the US Dollar’s surges – at least for now.
At the beginning of the week, the Federal Reserve announced an unlimited quantitative easing (QE) scheme. On top of this, last night saw US Congress finally reach a huge deal on fiscal stimulus.
The fiscal stimulus for the US economy is softening the market’s need for safe havens, leading to a rebound in demand for other assets including riskier ones like the Pound. According to Moh Siong Sim, Currency Analyst at the Bank of Singapore:
‘Now we are seeing the fiscal bazooka in action, and that should help further ease the Dollar funding stress,
There has been a need for cash to ride through this period where there is a revenue shortfall,’
Pound to US Dollar (GBP/USD) Exchange Rate Still Awaiting UK Stimulus
UK Chancellor Rishi Sunak has been under pressure over the past week to ramp up government support for the self-employed. Markets still widely expect that Sunak will soon announce support for self-employed workers amid the coronavirus pandemic.
Demand for the Pound is currently limited, largely boosted by risk-sentiment. However, the British currency could see more solid support on UK fiscal stimulus.
As a result, Pound investors continue to closely monitor Britain’s domestic situation. With the nation on lockdown, signs of an eventual economy rebound might help the British currency further.
As for the US Dollar, it could see further losses as market safe haven demand cools. If fiscal stimulus continues to help the global market outlook, the US Dollar could lose more of its recently exceptional strength.
On the other though, the US Dollar remains a safe haven. If the global coronavirus outlook takes another turn for the worse, the Pound to US Dollar (GBP/USD) exchange rate could fall under pressure once again.
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