The Pound to US Dollar (GBP/USD) exchange rate tumbled as the US Dollar (USD) rebounded today. Investors have been buying into the safe-haven currency as global market sentiment remains cautious.
The GBP/USD exchange rate has shied away from weekly highs of $1.3699 and is currently trending at around $1.3625 at the time of writing on Friday.
Pound (GBP) Struggles for Direction as GDP Data Limits Losses
The Pound struggled for direction today, though better than expected GDP data from November limited Sterling’s losses.
Beating forecasts of a -5.7% contraction in growth the actual figure of -2.6% was welcomed by investors, however was not enough to push the Pound higher.
Darren Morgan, ONS Director for economic statistics said:
‘The economy took a hit from restrictions put in place to contain the pandemic during November, with pubs and hairdressers seeing the biggest impact.’
‘Manufacturing and construction generally continued to operate, while schools also stayed open, meaning the impact on the economy was significantly smaller in November than during the first lockdown.’
Chancellor Rishi Sunak also spoke on the figures, stating that:
‘It’s clear things will get harder before they get better and today’s figures highlight the scale of the challenge we face.’
This comes as Sunak faces growing pressure to add more support to those affected by the coronavirus in his budget in March, worrying GBP investors.
US Dollar (USD) Appealing as Global Coronavirus Gridlocked
The US Dollar has become increasingly appealing this week as investors snap up the safe-haven currency.
The global coronavirus pandemic situation appears to be worsening as countries are left without vaccines and variants of the virus are rife, worrying investors that a sense of normality is still far off.
This has caused a slight rebound in the US Dollar’s safe haven appeal.
USD investors were also focused on President Elect Joe Biden’s $1.9 trillion aid proposal with was announced late on Thursday evening, which did little to worry markets as the proposal had been expected.
The proposal not only offers a minimum wage of $15 per hour but also further funding for coronavirus testing and new vaccination programmes.
Sterling to Weaken if US Dollar continues its Rebound
The Pound (GBP) could face further worries if the US Dollar (USD) continues its upward turn and global market sentiment falters.
Pound investors will keep an eye on any further coronavirus developments in the coming days, with some investors worried that restrictions could be made tougher next week, which would add pressure to Sterling.
The US Dollar (USD) will be cheered on by a negative market sentiment.
However, as the weeks pass and economies begin to start their vaccine rollouts, it’s perceived that economies will begin to recover from the pandemic, likely boosting global market sentiment and weakening the ‘Greenbacks’ gains.