GBP/USD Exchange Rate Edges Higher as Global Recession Fears Rise
The Pound US Dollar (GBP/USD) exchange rate edged higher today, with the pairing currently trading around $1.307 as the ‘Greenback’ suffers from rising fears over the global coronavirus outbreak as oil prices and stocks suffer.
The US Dollar (USD) has also suffered from fears that the US Federal Reserve could cut its rates to zero.
Michael Gapen, the Head of US Economics Research at Barclays, said that the likelihood that the Bank would slash its interest rates to zero was now ‘higher than the risk of a recession’. He also added, ‘There is probably a low risk of recession, a 1 in 4 maybe at the most’.
Today also saw the ‘Greenback’ suffer from the 10-year US Treasury yields falling to a record low of below 0.5% after Saudi Armco’s announcement of Saudi Arabia’s decision to increase crude production.
Tony Dwyer, Canaccord Genuity Market Strategist, commented:
‘There has been an extreme ‘risk-off’ move in the financial markets due to the fear surrounding the COVID-19 virus and the most recent Saudi oil decision … There was a sharp spike in rates following that extreme in 2008 and we expect something similar as the global monetary and fiscal stimulus is rolled out.’
GBP/USD Exchange Rate Improves In Spite of Brexit Fears
The Pound (GBP) gained against the weaker US Dollar (USD) today in spite of growing Brexit concerns.
This follows comments from former Chancellor of the Exchequer Philip Hammond, who said:
‘If the virus starts to disrupt everyday life … and many other processes have slowed down as a consequence, there is no reason to think that Brexit trade talks will be immune, then the parties will have to work together in good faith to decide how to manage that.’
Due to a lack of UK economic data today, Sterling investors are instead speculating over the Bank of England’s potential rate cut to reduce the negative impact of COVID-19 on the British economy.
Analysts at Goldman commented:
‘The virus outbreak is expected to push the UK economy to the edge of recession, the hurdle for action is low and the [rate-setting] Monetary Policy Committee (MPC) has sufficient policy space to join other major central banks in easing policy.’
GBP/USD Outlook: Global Economic Developments in Focus
Sterling investors will be looking ahead to tomorrow’s release of February’s UK BRC Like-For-Like Retail Sales report. However, as this is expected to sink by -0.2%, we could see the GBP/USD exchange rate begin to sink.
The US Dollar (USD) will continue to be driven by global developments around the coronavirus. Any further signs that it could turn into a global pandemic and further weaken stocks and oil prices would prove USD-negative.