Pound to US Dollar Exchange Rate Jumps despite Lack of Sterling Appeal
Investors continued to buy the Pound Sterling to US Dollar (GBP/USD) exchange rate today. This was despite a lack of particular strength in the Pound (GBP) and is more due to developments in the global risk outlook weighing on the US Dollar (USD).
Since markets opened this week, GBP/USD has been trending with an upside bias.
GBP/USD opened this week at the level of 1.2484 and has been climbing. At first its gains were modest, but since yesterday the pair has jumped even higher.
At the time of writing on Thursday, GBP/USD is trending just around a high of 1.2648. This is the best GBP/USD level in over half a month, since mid-June.
Some notable US data due later could cause some Pound to US Dollar exchange rate movement as well.
Pound (GBP) Exchange Rates Steady as Markets Digest UK Chancellor’s Stimulus Plans
Yesterday saw UK Chancellor Rishi Sunak announce a new set of UK fiscal stimulus.
As part of a Summer Statement budget supplement, Sunak announced more information on how the government planned to help the economy return to normalcy from the coronavirus pandemic.
The news was ultimately seen as having little impact on Britain’s economic outlook or the Pound. However, despite this the Pound has been benefitting from the news.
According to Yohay Elam, Analyst at FXStreet:
‘Markets seem content with the government’s £30 billion stimulus package. Chancellor of the Exchequer Rishi Sunak also presented a job retention plan to get people back to work, and retraining programs for the young. Perhaps more importantly for investors – he clarified that ‘the job is only beginning.’ Perhaps after seeing the impact of the special stimulus – and the reaction in financial markets – he will come up with an even greater injection of funds.’
US Dollar (USD) Exchange Rates Tumble as Investors Turn Away from Safe Havens
The US Dollar is traditionally a safe haven currency. It is a currency that benefits in times of global uncertainty.
Over much of the past week, it has edged higher as fears of a ‘second wave’ of coronavirus infections worsen.
However, despite persisting fears amid surging coronavirus cases in the US, investors remain hopeful for a global recovery. This is because China, the world’s second biggest economy, has seen some promising signs of recovery in recent sessions.
According to Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets:
‘We’ve seen a more generalised view back to riskier assets. The Chinese equity surge has been the poster child for risk-on move across the last few sessions,’
Pound to US Dollar (GBP/USD) Exchange Rate Could Hold Its Gains if Risk-Sentiment Rises
Hopes for the global economic recovery to persist despite fears of a ‘second wave’ of coronavirus infections continue to support the Pound to US Dollar exchange rate.
The US Dollar’s safe haven appeal will remain weak so long as hopes for global recovery persist. On top of this, the surging number of coronavirus cases in the US is dampening the US domestic outlook.
As a result, investors have little reason to buy the US Dollar.
If investors continue to find the Pound appealing amid the latest fiscal stimulus plans and hopes for Brexit progress, this could lead to even further GBP/USD gains.
However, if no-deal Brexit fears persist or worsen, this is likely to keep significant pressure on the Pound to US Dollar (GBP/USD) exchange rate outlook.