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Pound to US Dollar Exchange Rate Dips as Global Markets Become Jittery Over US Covid Stimulus Plan

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GBP/USD Exchange Rate Falls as Improving Employment Rates Could Limit US Stimulus

The Pound to US Dollar exchange rate dipped today, with the pairing currently fluctuating around $1.36.

The US Dollar rose against Sterling today as global markets are becoming more cautious over the growing uncertainty over the size of the next US Covid-19 stimulus package.

Michelle Meyer, the head of US Economics at the Bank of America Corporation, highlighted the fact that rising job creation could ‘take out some of the urgency’ for a broad-based stimulus plan.

Meanwhile, the US Democrats in Congress have taken the first steps towards advancing President Joe Biden’s proposed $1.9 trillion stimulus package without support from Republicans.

However, with the debate over the coronavirus aid plan still due to go ahead, global markets are becoming increasingly jittery on fears that the stimulus package could be challenged.

In US economic news, ‘Greenback’ traders will be awaiting today’s publication of January’s ADP Employment Change data.

If US job creation continues to rise, however, this could further the case against Joe Biden’s substantial coronavirus aid plan.

As a result, we could see the USD/GBP exchange rate suffer as the outlook for the US economy – and therefore the world’s – looks increasingly uncertain.

Pound Struggles as Business Leaders and Groups Warn of Major UK Unemployment

Sterling struggled against the US Dollar today following warnings from key business leaders and groups that the UK could face an unprecedented unemployment crisis.

Chancellor Rishi Sunak has been warned by some of the most influential business groups that mass unemployment could severely weaken the UK’s economic recovery post-April, when the furlough scheme officially ends.

Adam Marshall, the director general of the British Chambers of Commerce, explains:

‘What one can’t do is say that once the vaccine rollout has happened, everything will be OK. That is not the case. You’ve got businesses in deep trouble, and still the possibility of flare ups in the virus. It’s not a case of just vaccinate and forget about it.’

In UK economic news, today saw the release of the final UK Services PMI for January, which beat forecasts – rising to 39.5 – but remained in contraction territory.

Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, commented:

‘The cost of operating in the current economic climate continued to bear down on the services sector as shortages in shipping availability and higher transportation charges saw another inflationary rise in doing business. Lockdown measures and rising costs contributed to the steepest fall in overall activity since the historic lows of last year and the sector’s hand was forced into also raising prices to consumers for the first time in five months.’

Could a Dovish Bank of England Drag Down the Pound Tomorrow?

Pound traders will be awaiting tomorrow’s announcement of the Bank of England’s (BoE) interest rate decision. However, with the interest rate expected to remain at 0.1%, this is unlikely to influence Sterling.

If the BoE’s monetary policy is dovish, however, then we could see the GBP/USD exchange rate begin to fall.

In US news, ‘Greenback’ investors will be monitoring the latest US Initial Jobless Claims data. Any indications of worsening unemployment could weigh on the USD.

Global risk sentiment will continue to drive the USD/GBP exchange rate, however, with growing concerns about the global economy’s ability to recover boosting demand for the safe-haven USD.

The GBP/USD exchange rate will be driven by UK Covid-19 developments. If infection rates continue to fall and vaccinations increase, then Sterling would head higher.

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