GBP/USD Exchange Rate Steady as US Dollar is Dragged Down by Risk-On Markets
The Pound US Dollar (GBP/USD) exchange rate held steady today, with the pairing currently trading around $1.22.
The US Dollar (USD) has continued to suffer from a steady improvement in risk appetite. This follows a Franco-German proposal to offer grants to European Union regions and sectors particularly hit by the coronavirus pandemic.
Lee Hardman, an analyst at MUFG, commented:
‘The Franco-German proposal represents a material step forward towards harnessing joint fiscal capacity to provide sustained fiscal stimulus to support the economic recovery.’
Meanwhile, the ‘Greenback’ has suffered from dismal US economic data. Yesterday, for example, saw US housing starts for April plummet from 1.276 million to 0.891 million, while building permits for the same month fell from 1.356 million to 1.074 million.
Ian Shepherdson of Pantheon Macroeconomics, commented:
‘A steep drop in activity was inevitable given the lockdowns, but we think these numbers will mark the floor.’
The US Dollar (USD) has also struggled from risk-on market mood today as Europe continues to open its economies and ease lockdown measures. As a result, with one of the world’s largest economies showing promising signs of recovery, investors have shunned the safe haven ‘Greenback’.
Pound (GBP) Steady Despite Dire UK Inflation Data for April
The Pound (GBP) held steady against the US Dollar (USD) despite UK inflation data for April falling to four-year lows. The annual figure showed a decrease to 0.8%, while retail sales also suffered due to the nationwide anti-coronavirus lockdown.
Jonathan Athow, deputy national statistician for economic statistics at the ONS, commented:
‘While the coronavirus limited the availability of some goods and services, its effect on prices was more muted. Falling petrol and diesel prices, combined with changes to the domestic energy price cap were the main reasons for lower inflation in April.’
Meanwhile, yesterday saw the UK Chancellor, Rishi Sunak, downplay hopes of a quick economic recovery. Mr. Sunak commented that Britain faces a recession ‘the likes of which we haven’t seen’.
Looking ahead, we could see Sterling begin to fall if Andrew Bailey, the Bank of England’s (BoE) Governor, is notably dovish in his speech this afternoon.
GBP/USD Outlook: Could Sterling Rise as Risk Sentiment Improves?
Pound (GBP) investors will be looking ahead to tomorrow’s release of the preliminary UK Services PMI for May. However, with the figure expected to remain mired deeply in contraction territory, we could see Sterling suffer.
Tomorrow will also see the release of the US initial jobless claims report for May. If these continue to rise, then we could see the US Dollar (USD) fall as the world’s largest economy suffers from the coronavirus pandemic.
US Dollar (USD) traders will also be awaiting tomorrow’s testimony from Jerome Powell, the Chairman of the Federal Reserve. Though further plans for stimulus measures to boost the American economy would prove USD-negative.
However, the GBP/USD exchange rate could rise this week if risk sentiment continues to improve.