Trump’s Travel Ban Causes Pound US Dollar (GBP/USD) Exchange Rate to Plummet

Pound Sterling US Dollar (GBP/USD) Exchange Rate Falls as ECB Disappoints Markets

UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate plummeted by around -1.5% today, leaving the pairing trading at around $1.2619.

Sterling slumped near a five-month low on Thursday afternoon after US President Donald Trump hit Europe with travel restrictions overnight.

While yesterday’s Bank of England (BoE) and government stimulus provided GBP with a boost, the currency slumped after Trump’s flight ban.

The US Dollar rallied after the European Central Bank (ECB) approved fresh stimulus, but left interest rates unchanged which disappointed markets.

This sent investors flocking to the safe-haven ‘Greenback’ and allowed the currency to jump by over 2% against the Australian Dollar (AUD) and over 1% against the Euro (EUR).

Meanwhile, UK Prime Minister, Boris Johnson will chair an emergency Cobra meeting today. He is expected to approve moving from ‘containment’ to the ‘delay’ phase in the government’s response to coronavirus.

Pound Sterling US Dollar (GBP/USD) Exchange Rate Jumps on Surprise BoE Rate Cut

The Pound Sterling US Dollar (GBP/USD) exchange rate edged 0.4% higher after the Bank of England (BoE) unexpectedly cut rates. This left the pairing trading at around $1.2961.

The BoE became the latest central bank to cut interest rates due to increased concern over the coronavirus outbreak.

The British central bank followed the Federal Reserve’s lead by cutting rates by 50 basis points, just hours before the UK budget.

The Pound was able to make gains despite markets only pricing in a smaller 25 basis point cut from the BoE.

Sterling was left under pressure, sinking by more than half a cent against the Dollar following the news the bank had cut rates for the first time since August 2016. However, these losses were soon reversed.

Commenting on this, Moh Siong Sim, currency strategist at the Bank of Singapore said:

‘Markets had priced in more than 25 basis points, but not the full extent of 50 basis points.

‘But it’s not a surprise in the sense that the market was kind of expecting the bank to team up with the UK government […] it looks like that 50 basis point rate cut could signal that we could expect something quite substantial from the budget itself.’

No Immediate Sign of Coronavirus Deal Sends US Dollar (USD) Lower

The US Dollar slipped against the Pound on Wednesday as the number of Covid-19 cases in the United States rose.

On Tuesday, the Trump administration and Congress negotiated measures to boost the US economy and protect American’s paychecks from the virus.

Although, there was no immediate sign of a deal between the two which weighed on the ‘Greenback’.

Speaking at a White House briefing, head of the coronavirus task force, Vice President Mike Pence said:

‘We has a good reception on Capitol Hill. We’re going to be working with Republican and Democratic leadership to move a legislative package.’

While the Dollar received some temporary relief on hopes the government stimulus package was in the making. Although growing scepticism dampened USD’s rally.

One of the main features of the Trump administration’s legislative proposal is payroll tax relief, although the details were unclear.

Pound US Dollar Outlook: Rishi Sunak’s UK Budget in Focus

Looking ahead, the Pound (GBP) could make further gains against the Dollar (USD) as investors eye today’s UK budget.

If British Chancellor Rishi Sunak announces further measures to help offset the economic effects of coronavirus, Sterling will rise.

Meanwhile, disappointing US inflation data could send the Dollar lower.

If inflation stagnates in February, it will dampen ‘Greenback’ sentiment and cause the Pound US Dollar (GBP/USD) exchange rate to edge higher.

Millie Empson

Contact Millie Empson