GBP/USD Exchange Rate Falls on a Dimming UK Economic Outlook
The Pound US Dollar (GBP/USD) exchange rate fell by -0.3% today, with the pairing currently fluctuating around $1.276.
The odds of economic stimulus measures from the Bank of England (BoE) has increased after the bank said in its statement that it could take steps to ‘protect financial and monetary stability’ in the near-term.
The BoE also noted the global outbreak of the coronavirus, saying in its statement that it would continue to ‘monitor developments and is assessing its potential impacts on the global and UK economies and financial systems’.
The GBP/USD exchange rate has fallen due to rising uncertainty over the British economy, with UK coronavirus outbreaks and post-Brexit strains between the UK and the EU leaving markets wary of investing in Sterling.
Today’s release of February’s UK Manufacturing PMI also failed to boost the Pound, in spite of a strong reading at 51.7.
Rob Dobson, Director at IHS Markit, was cautious in his analysis of the report, saying:
‘The UK manufacturing sector remained in recovery mode in February, as reduced levels of political uncertainty following last year’s general election translated into further growth of output and new orders.’
‘[However, with] supply-chain headwinds rising, and trade negotiations with the EU starting, it remains to be seen whether the recovery can stay on course during the coming months.’
Safe-Haven Demand Boots US Dollar (USD)
The US Dollar (USD) has continued to benefit from its safe-haven status as the coronavirus outbreak in China continues to leave investors in a risk-off mood.
Georgette Boele, an analyst at ABN Amro Bank NV, Amsterdam, comments:
‘If risk aversion turns into market panic, the Dollar will live up to its safe-haven status again. At times of panic, cash in a liquid currency or U.S. Treasuries are the most sought after investments.’
Some of the ‘Greenback’s gains have been capped by rising odds of a rate cut from the Federal Reserve. However, the question remains over whether it will be a larger cut of 50 basis points.
Coming up today, the US ISM Manufacturing PMI for February could boost the USD/GBP exchange rate if the report confirms hopes of an improving US economy. Conversely, if America’s manufacturing gauge falls below forecasts, we could see Fed rate cut odds shoot up and weaken USD.
GBP/USD Outlook: Could ‘Greenback’ Sink on Fed Rate Cut Fears?
Sterling investors will be awaiting tomorrow’s publication of February’s UK Markit Construction PMI. As this is expected to fall from 48.4 to 46.3, we could likely see the GBP/USD exchange rate continue to fall as BoE rate cut odds increase.
The US Dollar (USD) is likely to maintain its lead on the Pound (GBP) as investors continue to flee risk-correlated currencies for safe-haven currencies like the ‘Greenback’, Swiss Franc and Japanese Yen.
However, any further signs that the Federal Reserve could cut its interest rates next month and we could see the US Dollar begin to sink.