GBP/USD Exchange Rate Volatile and Safe Haven Demand Lingers
Concerns over the coronavirus pandemic are worsening today, and the Pound Sterling to US Dollar (GBP/USD) exchange rate is tumbling as investors buy safe havens. As a safe haven currency, the US Dollar (USD) is often more appealing in times of market uncertainty.
Last week saw GBP/USD surge as investors more willing to take risks. After opening the week at the level of 1.3585, GBP/USD spent the week climbing and even touched on a fresh 2 and a half year best of 1.3742.
GBP/USD slipped a little before markets closed for the week and the pair ended the week at the level of 1.3683.
Since markets opened this week, GBP/USD has seen volatile movement. GBP/USD has been unable to hold much in the way of solid gains, but trends near the level of 1.3696 at the time of writing.
Pound (GBP) Exchange Rates Lack Strength amid Domestic Coronavirus Fears
The Pound (GBP) advanced against many major rivals last week. This was due to a combination of higher market sentiment, as well as hopes for Britain ramping up its coronavirus vaccination schemes.
However, the coronavirus pandemic continues to weigh heavily on the Pound outlook. The UK government continues to indicate that the current lockdown could last for quite some time, as infection rates remain high.
Coronavirus pandemic fears are weighing on the Pound today.
According to Analysts at MUFG:
‘Relatively fast UK vaccine roll out could result in quicker exit from COVID crisis and stronger GBP. But optimistic outcome remains highly uncertain. Government’s strategy to delay second doses could backfire.’
US Dollar (USD) Exchange Rates Buoyed by Market Risk-Aversion
The safe haven US Dollar is a little stronger today. Investors are hesitant to sell it as global coronavirus pandemic fears are boosting appetite for safer assets.
Today’s US Dollar strength is due largely to this brief rise in safe haven demand though, as well as a brief pause from the currency’s losses last week.
According to Kazushige Kaida, Head of FX Sales at State Street Bank in Tokyo, the US Dollar’s overall trend remains fairly bearish:
‘I don’t think the Fed has any incentives to curtail its stimulus at this point, even though some market players may try to read between the lines for any signs of tapering in stimulus,
I think the Dollar is staying in a downtrend even though it is marking time for now,’
Pound to US Dollar (GBP/USD) Exchange Rate May See Further Gains
Both the Pound and US Dollar are seeing very limited strength in recent sessions. However, despite recently seeing multi-year-highs, GBP/USD may be in for further gains soon.
Analysts predict that a more dovish Federal Reserve, combined with economic recovery hopes, could keep the US Dollar tumbling.
If upcoming UK data impresses or there are any signs of improvement in Britain’s coronavirus situation, the Pound is much more likely to sustain more gains.
However, some analysts caution against betting on more Pound gains. Analysts at MUFG believe much of the Pound’s good news has been priced in:
‘We believe that a lot of good news has been priced into the GBP recently. The GBP has derived support from the move higher in short-term UK rates, but they are unlikely to continue to move much higher in the near-term. It makes us cautious over chasing further near-term GBP gains.’
Tomorrow will see the publication of Britain’s latest job market data. US confidence data and Richmond Fed manufacturing figures could also influence the Pound to US Dollar (GBP/USD) exchange rate.