GBP/USD Exchange Rate Sinks, IMF Recession Warning Sends Markets into Risk-Off Mood
The Pound to US Dollar (GBP/USD) exchange rate fell by -0.4% today, with the pairing currently trading around $1.247.
The US Dollar (USD) has continued to benefit from its safe-haven status after the International Monetary Fund (IMF) announced that the world economy could see the worst recession since the Great Depression.
Earlier this week saw Gita Gopinath, the Chief Economist at the IMF, comment:
‘It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago. The Great Lockdown, as one might call it, is projected to shrink global growth dramatically.’
The ‘Greenback’s recovery comes in spite of yesterday’s dismal US Retail Sales figure for March, which slumped below consensus to -8.7% due to America’s ongoing lockdown to curb the spread of the coronavirus.
Yesterday also saw the release of America’s Industrial Production report for March, which tumbled from 0.5% to -5.4% as the economy continues to struggle to hold out against the virus.
Coming up today is the US Initial Jobless Claims report for April. USD investors will be preparing for another colossal rise in American unemployment.
However, the risk-off market mood continues to benefit the US Dollar safe-haven as US President Donald Trump continues to remain optimistic about the nearness of the nation’s peak of the coronavirus pandemic.
Pound (GBP) Sinks as UK Expected to Extend the Coronavirus Lockdown Period
The Pound (GBP) fell against the US Dollar (USD) as the UK Government is expected to extend its coronavirus lockdown by up to three weeks, leaving some Sterling investors concerned for the British economy going forward.
Today will see the Foreign Secretary, Dominic Raab, lead the emergency Cobra committee and cabinet meetings which will address the physical distancing measures.
If Downing Street does decide to extend the lockdown, we could see the GBP/USD exchange rate sink further as the British economy comes under increasing strain.
Professor Neil Ferguson, whose modelling directly guides Downing Street’s strategy, said that many social distancing measures would remain in place ‘indefinitely’ until a vaccine for Covid-19 was found.
Mr Ferguson commented:
‘[Things are] not going to be going back to normal. We will have to maintain some form of social distancing, a significant level of social distancing, probably indefinitely until we have a vaccine available.’
We could also see the Pound (GBP) fall later this afternoon if Silvana Tenreyro, a member of the Bank of England’s Monetary Policy Committee is notably downbeat about the UK economy.
GBP/USD Forecast: Could Further UK Lockdown Measures Weaken the Pound?
The US Dollar (USD) is likely to continue to benefit from its safe-haven status this week. However, if Europe’s most heavily hit by the coronavirus – Spain and Italy – continue to recover, we could see some of the ‘Greenback’s appeal slip.
The Pound (GBP), meanwhile, will remain sensitive to coronavirus developments throughout the rest of this week. Should we see Downing Street take a harder stance in its lockdown, or agree to extend it for several weeks, we could see the GBP/USD exchange rate fall as the UK’s economic outlook darkens.
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