GBP/USD Exchange Rate to Stay Low as Pound Demand Slides?
The Pound US Dollar (GBP/USD) exchange rate retreats back to last week’s levels this morning, as GBP optimism turns to concern over dramatic covid spikes.
At the time of writing, the Pound is trading at $1.3775, virtually unchanged from today’s opening rate.
British Pound (GBP) to Extend Losses as Reopening Plans Breed Concern?
Earlier in the week, the Pound (GBP) was supported by reassurance from Prime Minister Boris Johnson that in all likelihood the July 19 ‘Freedom Day’ reopening would go ahead. Following further outbreaks of covid-19 in the UK and across Europe, however, scepticism has begun to affect trading sentiment. More than 100 global experts have written to the UK government, warning that lifting restrictions as planned is ‘dangerous and premature’ and will provide ‘fertile ground for the emergence of vaccine-resistant variants’.
If public opinion continues to be swayed by such outcries, it’s likely that GBP trading sentiment will retreat further. As pressure mounts upon Whitehall to delay restriction-easing, reopening optimism may be replaced with uncertainty over whether the proposed changes will go ahead as planned.
Without any significant UK data to be released for the remainder of this week, Sterling is unlikely to prompt much movement in its currency pairings. According to FX strategists at UOB Group, ‘GBP is expected to trade sideways within a 1.3760/1.3850 range.’
US Dollar (USD) Favoured for its Safe-Haven Status
Concerns over the coronavirus Delta variant continue to exert downside pressure on GBP/USD, pushing investors towards the safe-haven US Dollar. Cases have spiked overnight in many parts of the world, threatening renewed restrictions upon the economy as businesses may be forced to scale back once again.
Though dovish, yesterday’s Federal Open Market Committee (FOMC) minutes failed to detract from USD’s appeal, with the ‘Greenback’ tumbling only slightly before recovering. While several policymakers observed that US economic recovery was faster than expected, the consensus maintained that the bond-tapering criteria first set forth by Chair Jerome Powell in April, of ‘substantial further progress’, had not been met.
Looking forward, USD price dynamics are likely to continue to drive any movement in the GBP/AUD exchange rate. This afternoon’s US Jobless Claims data may hold some influence over the exchange rate, possibly increasing USD support if claims drop from last month, as expected.