The Pound started 2021 rallying against the US Dollar, however the pairing slipped below $1.36 this afternoon, down from two-and-a-half-year highs, in anticipation of Boris Johnson’s announcement of a lockdown in England this evening.
Pound (GBP) Exchange Rates Weakens on Prospect of Tougher Coronavirus Restrictions
Investors had been buying the Pound since the UK and EU agreed a post-Brexit trade deal at the last minute.
However, fears of a third national lockdown continue to worry GBP investors, as restrictions are expected to be toughened in the coming days, with the Prime Minister addressing the nation at 8pm this evening.
Although, the Pound received some support from today’s stronger-than-expected UK manufacturing PMI.
The manufacturing PMI actually came in even higher than projected, at 57.5 in December 2020, its best level of expansion in three years.
The PMI showed that Britain’s manufacturing sector was weathering the coronavirus pandemic much better than it had been towards the beginning of the pandemic.
US Dollar (USD) Exchange Rate Continues to Struggle
The safe-haven US Dollar continues to be weighed by the positive global outlook.
As coronavirus vaccines continue to rollout in major economies, markets are becoming more optimistic that the global economy will be able to recover from the pandemic.
This optimistic outlook is limiting demand for the safe-haven US Dollar as Investors remain more willing to take risks instead.
Furthermore, the US coronavirus pandemic continues to spiral out of control with vaccine rollouts not yet helping to limit further cases and deaths.
This, combined with low US interest rates and higher US deficits, have kept the US Dollar less appealing than the Pound and Euro.
GBP/USD Exchange Rate Forecast: Coronavirus Restrictions Could Spell Trouble
The Pound’s gains from the post-Brexit trade deal relief and the weakness of the US Dollar may fade as coronavirus restrictions threaten the UK economy.
However, the US Dollar could rebound again if there is a rise in market demand for safe havens soon.
Though with fresh concerns hitting both the Pound and US Dollar there could be more troubles to come, which could see the US Dollar jump in safe haven demand.