US Dollar Rally Hits Pause After Sharp Jump in Initial Jobless Claims
Updated 19/3/20 13:10 GMT: After coming close to refreshing a 35-year low earlier this morning, the Pound to US Dollar (GBP/USD) exchange rate has found some temporary reprieve following the publication of the latest US jobless claims.
While usually viewed as low tier data, the weekly unemployment figures have been thrust into the limelight as they act as the first real indication of how the US economy is faring amidst the coronavirus crisis.
This has resulted in demand for the US Dollar cooling as claims for unemployment benefits surged from 211,000 to 281,000 in the week ending 14 March as businesses started laying off employees.
GBP/USD Exchange Rate Trades Close to $1.14
The Pound to US Dollar (GBP/USD) exchange rate remains on the defensive this morning, with Sterling licking its wounds after collapsing around 5% during Wednesday’s trading session.
At the time of writing the GBP/USD exchange rate is trading at around $1.1504, down roughly 1% from today’s opening rate, but having recovered from a low of $1.1478 struck earlier in the session.
How High Can the US Dollar (USD) go as Coronavirus Panic Grows?
The currency market has been upended this week by a global rush into the US Dollar (USD), with investors flocking to the safe-haven currency amidst the global turmoil caused by the coronavirus crisis.
The US Dollar’s status as the world reserve currency has seen USD exchange rates skyrocket in spite of the US economy also coming under strain due to the outbreak of the coronavirus.
Zach Pandl, currency analyst at Goldman Sachs, said:
‘[The US Dollar’s rise] reflects the unique role the currency plays in the global economy and financial system, rather than a view among investors that the US economy is better placed to weather the coronavirus shock.’
Demand for the currency has been turbocharged further by concerns over a USD liquidity shortage, which has become somewhat of a self-fulfilling prophesy as businesses also pile into the currency as they seek to buoy their cash reserve amidst the rising uncertainty.
With no end in sight for the coronavirus crisis, the safe bet is on the US Dollar extended its climb in the days and weeks to come.
No Respite in Sight for the Pound (GBP)
At the same time the outlook for the Pound (GBP) is looking increasingly gloomy as the UK currency seems particularly vulnerable to the panic surrounding the coronavirus crisis.
We have seen a clear bearish trend towards GBP emerge over the past few weeks, resulting in the GBP/USD shedding roughly 10% since the outbreak really took hold at the start of March.
This collapse in Sterling appears to be driven by a mix of criticism over the government’s handling of the crisis -with its reluctance to impose quarantine measures- as well as concerns over the health of the UK economy and its ability to weather the coming storm.
Expect this downtrend to remain firmly in place as the UK government prepares to step up its response to the coronavirus in the coming days as it closes schools and puts London into lockdown.
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