Pound to US Dollar Volatile as both GBP and USD Experience Week of Losses
Revived Brexit fears have caused the Pound to US Dollar (GBP/USD) exchange rate to slip this week. However, thanks to the US Dollar’s (USD) own broad weakness the pair has only seen limited losses despite the Pound’s (GBP) plummets.
Since opening this week at the interbank level of 1.29, GBP/USD has largely trended with a downside bias. GBP/USD briefly climbed higher to the level of 1.30 in the middle of the week, but has since been trending lower.
At the time of writing on Friday, GBP/USD is holding above the morning’s three-month-low. It trades in the interbank region of 1.28.
Coronavirus fears continue to worsen and Federal Reserve interest rate cut bets rise. However, the Pound to US Dollar exchange rate may still struggle to recover.
Key UK and US data, as well as Brexit negotiations, will also be in focus next week.
Pound (GBP) Exchange Rates Remain Unappealing amid Hard Brexit and Coronavirus Jitters
Following fairly strong performance on economic hopes through much of January and February, the Pound (GBP) came under significant losses this week.
In newly published UK-EU negotiation mandate plans, the UK government indicated that it could walk away from talks as soon as June if they do not go well.
This caused fears of a cliff-edge scenario hard Brexit to return full force. The Pound plummeted as a result.
On top of this, coronavirus jitters are finally beginning to hit the Pound as well. Due to Brexit uncertainties the Pound is considered fairly risky, so it is unappealing as investors seek safe havens.
The number of reported coronavirus cases in Britain is also rising. According to Analysts from MUFG:
‘While country-by-country tallies of COVID-19 shows an un-alarming total of 15 in the UK, its near 5% current account deficit means a tightening of financial market conditions leaves currencies like the Pound vulnerable to the downside.’
US Dollar (USD) Exchange Rate Lacks Demand as Coronavirus Fears Lead to Fed Rate Cut Bets
While the Pound’s (GBP) weakness this week was ultimately more influential, GBP/USD could have fallen much lower. The US Dollar (USD) has also seen significant losses in recent sessions, limiting its gains against the Pound.
As the number of coronavirus cases outside of China begins to surge, fears of the virus spreading into the US have risen.
US President Donald Trump has been unable to douse fears of the virus outbreak’s potential to impact the US economy. On top of this, the Federal Reserve is perceived as having more room to act on policy than other major central banks.
As a result, Fed interest rate cut bets have been surging. Markets are pricing in a rate cut as soon as March, with multiple more cuts expected over the coming year.
According to economists at Danske Bank:
‘Looking at nearly all metrics, the economy is in worse shape than in June 2019. This means we should expect the Fed to shift soon in a more dovish direction and investors are right in pricing in cuts, in our view.’
Pound to US Dollar (GBP/USD) Exchange Rate Could Fall Further on Coronavirus Jitters
The Pound (GBP) has only just started falling on coronavirus panic, while the US Dollar (USD) has already seen considerable losses in reaction to it.
As a result, GBP/USD could continue to see bearish performance next week if the Pound doesn’t find any notable support.
Some notable UK ecostats due for publication next week includes final February PMI results. The manufacturing and services PMIs will be especially influential.
However, the biggest even for Sterling next week will be UK-EU Brexit negotiations finally beginning. If officials continue to show tough stances then the Pound could remain under pressure on this and rising virus jitters even if data is decent.
Notable US data will be published throughout the week as well. PMIs, factory orders and Non-Farm Payroll job stats could cause further Fed rate cut bets and USD losses if they disappoint.
Overall, the Pound to US Dollar (GBP/USD) exchange rate could be driven by numerous factors over the coming week.