GBP/USD Exchange Rate Rises on Hawkish Fed Comments
The Pound US Dollar (GBP/USD) exchange rate edged higher today after the US Dollar’s (USD) gains were undermined by a dip in US Treasury yields. The pairing is currently fluctuating around $1.39.
Added to this, Federal Reserve Chair Jerome Powell recently reiterated his belief that US inflation levels will be largely transitory.
Powell said during his testimony before Congress:
‘I will say that these effects have been larger than we expected, and they may turn out to be more persistent than we have expected.’
‘But the incoming data are very consistent with the view that these are factors that will wane over time, and inflation will then move down toward our goals and we’ll be monitoring that carefully.’
The latest US PMI composite data for June also remained relatively strong, buoying confidence in the world’s largest economy and also limiting the appeal of the safe-haven ‘Greenback’.
Chris Williamson, the chief business economist at IHS Markit, commented:
‘The early PMI indicators point to further impressive growth of the US economy in June, rounding off an unprecedented growth spurt over the second quarter as a whole.’
‘While both output growth and inflows of new orders have come off their peaks in both manufacturing and services, this is as much due to capacity constraints limiting firms’ abilities to cope with demand rather than any cooling of the economy.’
Now that key economies such as the Eurozone, UK, and China are reopening, demand for the US Dollar has tumbled.
Pound (GBP) Exchange Rate Rises Despite Soaring Cases of Covid-19 in UK
The Pound (GBP) rose today despite soaring UK Covid-19 cases, which leapt by 7,080 versus last week to 16,135 daily cases, its highest recording since the beginning of February.
However, reports from the Department of Health and Social Care revealed that 60% of UK adults have now received two doses of the Covid-19 vaccine.
Earlier this week also saw Prime Minister Boris Johnson say it was ‘looking good’ for lifting lockdown restrictions on 19 July thanks to the relatively low levels of hospitalisations and deaths from the virus in recent months.
Health Secretary Matt Hancock was also confident about the final lifting of restrictions next month, but added that the Government would further examine data next week.
In UK economic data, the latest PMI services and manufacturing figures revealed a robust recovery in the nation’s economy.
Chris Williamson, Chief Business Economist at IHS Markit, said:
‘Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector, meaning the second quarter looks to have seen economic growth rebound very sharply from the first quarter’s decline.’
Nevertheless, soaring Covid-19 cases could begin to limit confidence in the outlook for the UK economy.
GBP/USD Exchange Rate Forecast: Could Rising UK Covid-19 Rates Weaken Sterling?
Pound (GBP) investors are awaiting tomorrow’s interest rate decision from the Bank of England (BoE). Although the Bank is expected to hold interest rates at current levels, any bullishness from its policymakers would be GBP-positive.
However, Covid-19 infection rates will remain in focus this week. Any indications that these could push back the lifting of restrictions next month would weaken the GBP/USD exchange rate.
Could we see demand for the safe-haven US Dollar continue to tumble, however, as key economies reopen and ease lockdown restrictions?
US durable goods orders data will also be in focus on Thursday. If the outlook for the US economy continues to improve, then we could see the ‘Greenback’ begin to pick-up.
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