Pound to US Dollar Exchange Rate at Best Levels since March after Fed Gloom
The Pound to US Dollar (GBP/USD) exchange rate has been able to hold its best levels since before the pandemic. It is thanks partially to a dovish policy decision from the Federal Reserve last night.
Weakness in the US Dollar (USD) has made it easier for GBP/USD to trend higher this week. Since opening the week at the level of 1.2796, GBP/USD has been trending solidly higher.
Yesterday, GBP/USD touched on a high of 1.3007. This was the best level for the pair since early March, just before the coronavirus pandemic swept the globe.
Since then, GBP/USD has been trending closely to these highs. The US Dollar remains weak thanks to last night’s Federal Reserve policy decision.
Anticipation for upcoming major US growth data could limit the pair’s movements until this evening however.
Pound (GBP) Exchange Rate Outlook Still Sees Pressure from Underlying Concerns
The Pound has spent most of the week climbing against a weaker US Dollar. While the British currency’s advance attempts may be running out of steam, weakness in rivals the US Dollar and Euro (EUR) are helping it to hold its ground today.
However, the British currency’s outlook remains filled with uncertainties. This is preventing Sterling from climbing even more on the US Dollar’s overnight weakness. It is causing the currency to see more limited demand today.
Markets are still overall unimpressed with Britain’s handling of the coronavirus pandemic and the Brexit process. UK-EU Brexit talks have seen no notable progress this year, which is keeping markets concerned about a no-deal Brexit being possible.
According to a note from strategists at ING:
‘GBP investors remain in a cautious wait-and-see approach as UK-EU trade negotiations (the key driver of the currency) appear at a standstill,’
US Dollar (USD) Exchange Rates Weak as Federal Reserve Ramps Up Dovishness
As was widely speculated in the past week, the Federal Reserve took a more dovish tone at its July policy decision last night.
The Fed didn’t offer any surprises, leaving policy unchanged. The most notable part of the policy decision was signals that policy could be further loosened later in the year to support the US economy amid the ongoing coronavirus pandemic.
Fed Chairman Jerome Powell stressed that it’s too early to say how badly a spike in cases will impact the US chances of economic recovery. However, he did say that the data indicated that recovery had slowed so far.
Nela Richardson, Investment Strategist at Edward Jones, said it was noteworthy how central the pandemic was to the bank’s outlook:
‘The most notable thing is the statement that the path of the economy will depend on COVID-19. The Fed is putting health again front and center in its statement, which is impactful and meaningful,’
Pound to US Dollar (GBP/USD) Exchange Rate Outlook Could be Influenced by US Growth
A dovish policy decision from the Federal Reserve has already dampened the already gloomy US economic outlook.
Analysts are predicting the Fed will expand quantitative easing (QE) more towards the end of the year.
As a result, investors will be closely watching upcoming US data for signs over how the US economy is performing. This afternoon’s US growth rate data could also influence the outlook for example.
US Gross Domestic Product (GDP) growth rate stats from Q2 are expected to show a sharp quarterly slump in growth. If growth was even worse than expected, it could make investors even more anxious about the US outlook.
In this situation, GBP/USD would be more likely to hold its best levels. Stronger US data could help the US Dollar to recover some of its recent losses though, which could knock GBP/USD slightly.
The Pound outlook remains weak as well. Unless the US Dollar keeps weakening, the Pound to US Dollar (GBP/USD) exchange rate’s potential for gains is likely limited.