Pound to US Dollar Exchange Rate Struggles to Recover amid Sterling Weakness
The Pound (GBP) outlook has been filled with too many uncertainties for the Pound Sterling to US Dollar (GBP/USD) to hold its ground this week. While the US Dollar (USD) outlook remains concerning as well, it is still seeing some support in safe haven demand.
Since opening this week at the level of 1.2622, GBP/USD has been trending with a downside bias. GBP/USD touched on a weekly low of 1.2491 earlier in the week, before attempting to recover.
However, these recovery attempts were short-lived. GBP/USD was unable to hold a jump back to the week’s opening levels. At the time of writing on Friday morning, GBP/USD trended closer to the level of 1.2553 instead.
This week’s UK data has done little for the Pound outlook. However, optimistic UK developments could help Sterling steady, while the US Dollar (USD) outlook remains dominated by a chaotic coronavirus situation in the US.
Pound (GBP) Exchange Rates Lack Appeal after Week of Gloomy UK Data
Investors have little reason to buy the Pound after the past week.
The British currency’s outlook was already filled with uncertainties. The UK government’s handling of the coronavirus and Brexit crises have been criticised and weigh heavily on the Pound.
On top of this though, the latest UK data indicates that Britain’s economy is struggling amid the coronavirus pandemic more than expected.
Britain’s outlook took a hit especially from the UK growth report published earlier in the week. It showed growth was much weaker than expected in May, and caused hopes of a v-shaped recovery to fade.
Other UK data published since then has done little to influence the outlook in comparison. Overall, the Pound is falling against the US Dollar more easily due to Britain’s gloomy outlook.
US Dollar (USD) Exchange Rates See Limited Benefit from Safe Haven Demand
The US Dollar is typically considered a safe haven currency. It is a currency that is often more appealing in times of wide market uncertainty or crisis.
With global fears of a ‘second wave’ of coronavirus infections persisting, and infections surging in the US, the US Dollar has benefitted slightly from safe haven demand.
However, the US Dollar’s safe haven appeal is highly limited due to the escalating virus crisis in the US. Political instability in the US is also weighing on the appeal of the safe haven US Dollar.
According to Yohay Elam, Analyst at FXStreet:
‘The safe-haven greenback has seen some demand as markets seem to see the glass half empty. US retail sales leaped by 7.5% in June – smashing expectations for a 5% increase. However, this V-shaped recovery in consumption was somewhat overshadowed by stubbornly high jobless claims, which stood at 1.3 million in the week ending July 10. Moreover, US coronavirus cases broke the daily record. Again. They hit 75,000 and the mortalities neared 1,000.’
Pound to US Dollar (GBP/USD) Exchange Rate Outlook Could Worsen Further
Investors may remain hesitant to buy the Pound, unless there is a notable improvement in the British currency’s outlook.
The Pound is broadly unappealing amid Britain’s coronavirus and Brexit outlooks.
As UK officials continue to indicate that they will not extend the Brexit transition period, concerns about the possibility of a no-deal Brexit may only intensify in the coming weeks and months.
Some analysts say that if major Brexit developments happen at all, they may be in the coming month. As a result, a lack of Brexit developments may continue to drive Sterling even lower.
On top of this, GBP/USD may be in for further losses if the US Dollar’s appeal as a safe haven rises.
On the other hand though, the US Dollar’s safe haven appeal may instead fade further.
If the number of coronavirus cases in the US continues to worsen, US economic concerns will only intensify. This, as well as US political uncertainty, could make it easier for the Pound to US Dollar (GBP/USD) exchange rate to recover.
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