GBP/USD Exchange Rate Rangebound as US Dollar Struggles as Market Mood Improves on Vaccine Hopes
The Pound to US Dollar (GBP/USD) exchange rate held steady today, with the pairing currently trading around $1.28.
The US Dollar (USD) struggled today after hopes of a Covid-19 vaccine boosted risk-sentiment. As a result, the safe-haven ‘Greenback’ has suffered a sell-off in favour of riskier assets.
Josh Mahony, an analyst at IG, commented:
‘While markets have been burnt by heavily manipulated announcements from pharma firms working on treatments and vaccines, the fact is that we have multiple routes to success, as Pfizer, AstraZeneca, and Moderna all push to get their vaccines across the line.’
Meanwhile, in US economy news today saw the release of the latest S&P/Case-Shiller Home Price Indices for May, which fell below forecasts from 3.9% to 3.7%. Consequently, USD investors have become concerned for America’s economic recovery from the coronavirus pandemic.
Analysts at Oxford Economics were also pessimistic about the outlook for the US Dollar (USD), saying:
‘We are comfortable with the idea that the dollar may spike in the near term if risk-asset volatility rises. However, we see little basis for a rise to the March highs.’
Pound (GBP) Steady as UK Retail Sector Shows Promising Signs of Recovery
The Pound (GBP) benefited from a stronger-than-expected CBI Distributive Trades Survey for July, which beat forecasts and rose from -37% to 4%. As a result, GBP investors have become more hopeful that the British economy could be on the road to recovery.
However, Rain Newton-Smith, CBI’s Chief Economist, said that the ‘picture remains bleak’ for retailers.
Newton-Smith also added:
‘It’s great to see retail sales stabilise this month, but this doesn’t tell the whole story. This crisis has created winners and losers within the retail sector.’
Meanwhile, Sterling traders are remaining cautious after Prime Minister Boris Johnson warned of possible ‘signs of [a] second wave of [the] pandemic’ in parts of Europe. This has left some GBP investors concerned that the UK could also suffer from a second wave of Covid-19 in the months ahead.
The London School of Economics (LSE) has also reported that Brexit could prove a double-shock to the UK economy. As a result, GBP traders are remaining cautious as UK-EU post-Brexit trade negotiations continue, despite a lack of progress from either side.
GBP/USD Outlook: Could a Dovish Fed Buoy Safe-Haven Demand for ‘Greenback’?
US Dollar (USD) investors will be looking ahead to tomorrow’s interest rate decision from the Federal Reserve. With the Fed expected to hold rates at 0.25%, we could see risk-sentiment improve and drag down the ‘Greenback’.
However, if the Fed is notably downbeat in its Monetary Policy Statement, we could see the USD/GBP exchange rate edge higher as concerns grow for the global economy.
The GBP/USD exchange rate will remain sensitive to Brexit developments this week owing to a general lack of UK economic data until next week. If UK-EU trade talks progress, then we could see Sterling rise.