GBP/USD Exchange Rate Looks to Sink on Dovish Forward Guidance, Coronavirus Fears
The Pound US Dollar (GBP/USD) exchange rate is forecast to remain rangebound for the week ahead, potentially sliding if the Bank of England (BoE) fails to match the Federal Reserve’s hawkish tone.
Developments regarding the coronavirus and lifting lockdown measures could also threaten upside movement.
At the time of writing, GBP is trading at USD$1.3784, 0.3% down on this morning’s opening levels.
Pound (GBP) to Slide on Tense Reopening Atmosphere?
The Pound (GBP) has already fallen against the US Dollar (USD) over the past several days, heading for the worst week in a month. Despite a hawkish turn from two rate-setters at the Bank of England (BoE), economist Dean Turner observes that ‘we are still some way off a change in policy’, limiting tailwinds as a result of Michael Saunders’ speech yesterday.
Analysts remarked that the Pound faces headwinds as a result of rising covid cases, as the Delta variant spreads within the UK. Fears of a hospitalisation surge come the 19 July ‘Freedom Day’ have been exacerbated by comments from the UK’s Chief Medical Officer Chris Whitty, who stated last night that ‘we could get into trouble again surprisingly fast.’
Additionally, analysts have observed that businesses face pressure as the end of fiscal support measures approaches. The job furlough scheme unwind could be more disruptive than expected, as the economy faces an inevitable healthcare burden in the coming months.
Monday’s BoE speech may offer some support to the Pound, but overall Sterling is looking to trend downwards.
US Dollar (USD) to Lift as American Economic Growth Storms Ahead?
Chairman of the Federal Reserve, Jerome Powell, has admitted that inflation is well above target, but that the bank is in ‘active consideration’ of the economy’s progress. Consumer and producer price inflation was much higher than forecast in June; but any subsequent misgivings were soon smoothed over by stronger-than-expected retail data.
Economists warn of the negative impact on inflation expectations posed by the Fed’s reluctance to change policy, but still foresee tailwinds for the ‘Greenback’ as fundamentals favour the currency. It is proposed that ‘active consideration’ of the country’s economic progress may turn to tapering the bond programme at the August Jackson Hole symposium, a prospect that will be much anticipated.
USD gained against multiple currencies throughout today’s session as covid concerns globally drove investors to seek security in the safe-haven currency. Ambitious targets from the BoE cannot negate growing fears of another wave of infections, hospitalisations and deaths, which encourage a risk-off mood that inevitably favours the US Dollar.
Looking forwards, US Jobless Claims due to print on Thursday may bolster USD further, if the number of people claiming unemployment benefits falls as expected. Friday’s PMI data could also support the Greenback.