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Pound US Dollar (GBP/USD) Exchange Rate Flat After Largest Monthly Rise in a Decade

Stacks of US Dollar (USD) banknotes.

Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted Ahead of BoE Meeting

The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat on Tuesday. This left the pairing trading at around $1.3063.

The Pound was able to hold onto earlier gains due to a deepening Dollar rout. However, concerns of a second wave of the coronavirus crisis and the looming Bank of England (BoE) meeting capped gains and left the pairing flat.

In recent weeks, the Pound’s recovery has been impressive as it saw its largest monthly rise in over a decade last month. This came despite worries over the ongoing UK-EU post-Brexit negotiations.

However, MUFG’s currency strategist, Lee Hardman noted:

‘I think it’s more a case of the Dollar giving back some of the gains we’ve seen over the last couple of trading sessions.

‘That downward pressure on the Dollar is resuming partly because of the (Federal Reserve Bank’s) response to the coronavirus.’

US Dollar (USD) Flat as Traders Await Congress Relief Package

Meanwhile, Monday’s rebound in the US Dollar faltered as a downbeat economic outlook and worries over a US relief plan weighed on the currency.

The ‘Greenback’ suffered its worst month in a decade in July, although was able to start August on a better note as investors trimmed short positions.

The currency continued to struggle despite a slowdown in new coronavirus cases and upbeat factory data.

The latest US PMI data showed manufacturing activity in the US rebounded and jumped near a one-and-a-half year high. Orders increased despite the resurgence of coronavirus cases.

However, markets are waiting to see whether the world’s largest economy with 30 million citizens out of work can lead the world’s recovery.

Talks about a potential relief package also continue and top Democrats in Congress and White House negotiators have noted they have made progress.

According to FX analyst at Bank of Singapore, Moh Siong Sim:

‘We’re still in a situation where the market wants to believe the recovery is on track but is still worried about the COVID situation.

‘The fiscal wrangling in the U.S. is the next key test for risk sentiment, and if they manage to get a deal – which seems likely – that could be supportive of risk sentiment.’

Pound US Dollar Outlook: UK Services PMI in Focus

Looking ahead, the US Dollar (USD) could slide against the Pound (GBP) following the release of the latest US factory orders data.

If US factory orders jump more than expected in June it could boost risk appetite and send traders flocking away from the safety of the ‘Greenback’.

Meanwhile, Wednesday could see Sterling extend any gains made later this afternoon as traders await the latest UK services PMI.

If Britain’s services sector rebounds and growth accelerates in July it will boost the currency. This will send the Pound US Dollar (GBP/USD) exchange rate higher.

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