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Pound US Dollar (GBP/USD) Exchange Rate to Trade Narrowly Ahead of Key Events?

Pound US Dollar

Pound US Dollar (GBP/USD) Exchange Rate Rises Slightly as UK Covid Cases Tip Back Down

The Pound US Dollar (GBP/USD) exchange rate has risen slightly today on positive Pound (GBP) sentiment, as UK coronavirus cases trend lower again after a sudden spike last week.

At the time of writing, the Pound is trading at $1.3927, slightly elevated from this morning’s opening levels.

Pound to Retain Favour as UK Covid Cases Fall Back Down?

The Pound may consolidate this morning’s marginal gains throughout the session, if investors take heart from the UK’s drop in Covid cases.

Following a sudden surge last week of 4,000 cases in one day, cases have dropped once more, with 24,470 confirmed cases between Saturday and Sunday as opposed to 29,173 the same time a week earlier.

If the trend continues, the UK recovery could inspire a risk-on mood, supporting GBP against the safe-haven dollar: although analysts at OCBC bank warn that ‘pandemic-related positives are flimsy and prone to re-emerging cases.’

The UK’s manufacturing PMI has printed as expected – this is unlikely to have much effect on the markets as last week’s Flash release will already have been factored in.

Looking ahead, the determining event in terms of Pound movement will be Thursday’s meeting of the Bank of England (BoE).

Analysts at ING ‘don’t expect any new guidance on the interest rate path and look for the repeat of prior language that ‘significant progress’ is needed before stimulus is removed’; an eventuality that, if proven correct, could dent the Pound in its lack of hawkish sentiment.

US Dollar Gains Capped by Risk-On Sentiment

Risk-on sentiment is limiting the US Dollar (USD)’s gains this morning as investors appear optimistic amid easing concerns over China’s economic growth and regulatory crackdown.

Last week, a brutal sell-off in Chinese shares occurred as investors were spooked by Beijing’s ban on for-profit tutoring in core school subjects. Banks were subsequently reassured by a meeting with the securities regulator.

Meanwhile, the Chairman of the Federal Reserve Bank, Jerome Powell, sounded cautious about economic recovery at last Wednesday’s post-FOMC press conference, also limiting Dollar appeal.

The central bank decided not to raise interest rates from near zero nor adjust the pace at which it buys government bonds each month.

Economists point to this week’s data releases for clues as to GBP/USD exchange rate movement going forwards. The ISM surveys are expected to keep reporting strong demand, but once again will highlight constraints on the supply side.

ING reports:

‘The other main release, the July jobs report, should see employment gains at around 900k according to our estimates, which is largely in line with consensus and should underpin the notion that the labour market is on a solid recovery path… we expect the greenback to find at least a fairly solid floor in the week ahead.’