Pound to US Dollar Exchange Rate Slips as US Dollar Rebounds from Lows
The US Dollar’s (USD) broad losses have seemingly come to an end for now, as the Pound Sterling to US Dollar (GBP/USD) exchange rate has been knocked down from yesterday’s impressive highs. Despite this though, the US Dollar outlook remains fairly gloomy amid coronavirus jitters.
USD weakness has been building since the second half of February, and last week saw the US currency plummet across the board. Even a weak Sterling (GBP) was able to push GBP/USD higher, as the pair climbed from 1.2819 to 1.3046 throughout the week.
Then yesterday, USD weakness briefly peaked and allowed GBP/USD to surge to an impressive high of 1.3197. This was the best level for the pair in over a week.
GBP/USD quickly recoiled from those best levels though and USD has been seeing a slight rebound in demand since last night. The pair is trending close to the week’s opening levels at the time of writing on Tuesday.
Will the US Dollar rebound continue? Unless US data impresses and coronavirus jitters soften, it may be in for further weakness.
Pound (GBP) Exchange Rates Steady Ahead of Anticipated UK Budget News
The Pound has seen mixed movement in reaction to the worsening coronavirus outbreak. However, it has been able to climb against weaker rivals like the US Dollar.
This has been due more to weakness in those rivals, but hopes of UK economic resilience have played part in the Pound’s appeal as well.
For example, while major central bank interest rate cut bets surge, Bank of England (BoE) interest rates are already low. This is keeping further bets of cuts limited.
What’s more, due to recent signs of a UK economic rebound, markets hope that a rate cut could boost economic activity. On top of this, speculation has been rising that the government will offer fiscal stimulus in its upcoming budget presentation.
According to Marshall Gittler, Head of Investment Research at BDSwiss Group:
‘There’s a lot of optimism about the impact of this week’s UK budget, which appears likely to be coordinated with a round of interest rate cuts,
The rate cuts don’t necessarily have to be negative for Sterling if the market believes that they’re likely to bring about faster-than-expected growth.’
US Dollar (USD) Exchange Rates Rebounding after Week of Shocking Losses
Last week was one of the US Dollar’s worst weeks in years. The US currency plummeted across the board as Federal Reserve interest rate cut bets skyrocketed.
The Fed made an emergency rate cut last week in response to the coronavirus outbreak. Concerns that the virus could hit US and global economic activity have left markets continuing to pile into rate cut bets.
With some investors speculating that Fed rates could be slashed as low as 0.0%, the US Dollar experienced a huge selloff.
It was only after USD hit significant lows yesterday that this selloff finally paused.
The US currency has been rebounding slightly since yesterday as investors buy it from lows. There is also speculation of potential US fiscal policy to stimulate the economy, but the currency’s outlook remains gloomy overall.
According to Rodrigo Catril, Senior FX Strategist at National Australia Bank (NAB):
‘Expectations for a coordinated policy response are something that is evolving and ultimately this could help,
But in the short term the Dollar is driven by expectations for US Federal Reserve easing.’
Pound to US Dollar (GBP/USD) Exchange Rate Outlook Could Depend on UK Economy Hopes
For now, the Pound to US Dollar (GBP/USD) exchange rate rally has paused. However, there could be further gains ahead for the pair if the Pound’s outlook finds fresh support in the coming days.
Tomorrow will see the publication of all of the week’s most notable UK data. As the data is from January though, it may be brushed over in favour of the day’s highly anticipated budget presentation.
Amid the increasingly global coronavirus pandemic, there is rising speculation that Britain’s government will introduce fiscal stimulus in the budget.
If the budget is able to impress markets with spending plans, hopes for a UK economic rebound will rise and the Pound could see stronger demand against the jittery US Dollar.
Meanwhile, the US Dollar outlook is likely to remain under pressure. Markets remain concerned about Fed interest rate cut bets and the potential impact of Covid-19 on the US economy.
If tomorrow’s US inflation rate results fall short of expectations, Fed rate cut bets could rise even higher and the Pound to US Dollar (GBP/USD) exchange rate could resume its advance.