GBP/USD Exchange Rate Edges Higher Over Fears of Fed’s Budget Backfiring
The Pound to US Dollar (GBP/USD) exchange rate rose by 0.4% today, with the pairing currently trading around $1.235.
The US Dollar (USD) fell against the Pound (GBP) on rising fears that the Federal Reserve’s $4 trillion budget deficit could weigh on the ‘Greenback’.
Furthermore, the Fed’s two major interest rate cuts to near-zero has made the currency less appealing to investors, with markets beginning to favour negative interest rates like the Euro.
Yesterday’s plummeting of the Western Texas Intermediate (WTI) for May deliveries saw crude prices fall for the first time in history to negative territory. Shockingly, crude fell to just -$36.20 a barrel.
As a result, some analysts are predicting gloomy outlook for the US Dollar in the long-term.
Indeed, with America’s ongoing battle with the coronavirus, plummeting oil prices and rocketing unemployment levels, we could see the ‘Greenback’ lose some of its appeal.
Analysts at Goldman Sachs commented:
‘[T]he physical reality of a still massively oversupplied oil market will likely exert downward pressure on the June WTI contract.’
‘But with ultimately a finite amount of storage left to fill, production will soon need to fall sizeably to bring the market into balance, finally setting the stage for higher prices once demand gradually recovers.’
Pound (GBP) Edges Higher Despite March’s Weak UK Inflation Report
The Pound (GBP) rose against the US Dollar (USD) today despite March’s UK inflation figure sinking from 1.7% to 1.5%. As a result, this left many Sterling investors concerned for the British economy as it continues to be mired in uncertainty over Brexit and the coronavirus.
Saraha Hewin, the Senior Economist at Standard Chartered Bank, commented:
‘Normally low inflation would be welcomed as it means people have effectively more to spend in the shop but these are not normal circumstances.’
‘The fall in inflation, in addition to low energy prices, is an indication of the steep recession we will see in the coming months.’
Meanwhile, the Bank of England’s new Governor, Andrew Bailey, warned against the UK’s lifting of its Covid-19 restrictions prematurely.
Mr. Bailey added that such easing of restrictions could result not only in a ‘second peak’ health crisis but could also devastate the economy.
Furthermore, Sterling remains sensitive to global market volatility and the ongoing oil market rout.
Additionally, the UK’s open economy is heavily exposed to capital inflows and outflows, leaving it vulnerable to declines in the global economy.
GBP/USD Outlook: US Dollar to Rise on Safe-Haven Demand?
US Dollar (USD) investors will be looking ahead to tomorrow’s release of the US Initial Jobless Claims report for April. Any further surge in US unemployment, which is highly likely due to the coronavirus, could begin to weigh on the ‘Greenback’.
Meanwhile, tomorrow will also see the flash UK Markit Services PMI for April. Therefore, if the UK’s largest sector shows any signs of considerable downturn, then we would likely see the Pound fall against the US Dollar.
The GBP/USD exchange rate will likely begin to fall later this week as global market volatility, which is to be expected, should boost safe-haven demand for the ‘Greenback’.
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