GBP/USD Exchange Rate Edges Higher as Risk-On Markets Weaken US Dollar
The Pound to US Dollar (GBP/USD) exchange rate rose by 0.5% today after UK markets reopen after a long weekend. The pairing is currently trading around $1.22.
Sterling benefited from a rally in the global stock markets today as investors become more hopeful as Covid-19 lockdown measures across the world continue to ease.
Meanwhile, investors have already begun to shrug off Britain’s domestic issue over UK Prime Minister Boris Johnson’s chief advisor, Dominic Cummings.
Mr Cummings, it was reported, broke lockdown rules and drove 264 miles from London to Durham in April.
Instead, Pound (GBP) investors are turning their attention to UK-EU Brexit trade negotiations this week.
Gajan Mahadevan, a Strategist at Lloyds Bank, commented:
‘Should the market’s attention continue to shift from the coronavirus to other sources of risk, the narratives relating to a negative Bank rate and ongoing challenges in trade negotiations between the UK and EU may present headwinds to GBP/USD.’
However, with concerns rising over relations between the UK and EU after previous negotiations ended in a deadlock, the GBP could be in for a choppy ride.
Neil Jones, the head of sales as Mizuho Bank, explains:
‘Much uncertainty hangs in the balance around Brexit and the end of June. Uncertainty generally pushes volatility higher.’
US Dollar (USD) Falls as Risk-On Market Mood Sees Sell-Off of Safe-Haven Currencies
The US Dollar (USD) struggled from a sell-off of safe-haven assets today as investors become more optimistic about the global economy’s recovery.
With more nations easing their lockdown restrictions, traders are hopeful that we could see a faster-than-expected rebound in the global economy. As a result, traders are seeking out riskier assets.
Vaccine Hopes Weigh on US Dollar
Meanwhile, coronavirus vaccine hopes continue to rise and are furthermore driving today’s risk-on sentiment. This follows news that the US biotech company, Novavax, announced that it had started the first human study of its experimental vaccine.
Stanley C. Erck, the CEO of Noravax, commented:
‘Administering our vaccine in the first participants of this clinical trial is a significant achievement, bringing us one step closer toward addressing the fundamental need for a vaccine in the fight against the global Covid‑19 pandemic.’
In US economic data, ‘Greenback’ traders will be looking ahead to this afternoon’s release of the US new home sales reports for April. However, if the US economy continues to deteriorate, we could see investors return to USD as worries over the world’s largest economy grow.
GBP/USD Forecast: Could Weak US Economic Data Buoy Safe-Haven Demand?
US Dollar (USD) investors will be awaiting tomorrow’s release of May’s US Richmond Fed Manufacturing Index. However, if this continues to drop, we could see the ‘Greenback’ rise on concerns for the global economy.
Looking ahead to Thursday, the GBP/USD exchange rate could also suffer if US joblessness continues to rise in May. Additionally, American durable goods orders data for April will also remain in focus.
The GBP/USD exchange rate will continue to be driven by coronavirus developments this week. As a result, we could see Sterling benefit from any signs of the UK’s nationwide lockdown measures being eased.