Shock Fed Rate Cut Leaves Pound to US Dollar (GBP/USD) Exchange Rate Edging Up from 5-Month-Worst

Pound to US Dollar Exchange Rate Rebounding Slightly from Last Week’s Plummet

A resurgent US Dollar (USD) combined with a jittery Pound (GBP) meant the Pound to US Dollar (GBP/USD) exchange rate plummeted last week. The pair is attempting to rebound slightly from its lows today, but Sterling’s lack of drive means gains are limited.

After opening last week at the interbank level of 1.30, GBP/USD briefly held its ground before plummeting.

GBP/USD losses accelerated in the second half of the week, leaving the pair a huge 7 cents lower by Friday’s close. GBP/USD closed the week at the interbank level of 1.22.

Sterling’s attempts at rebound this week so far have been limited, but GBP/USD has recovered a little. GBP/USD is trending closer to the interbank level of 1.23 at the time of writing.

The US Dollar is a little steadier than it was last week due to attempts to stabilise markets. However, Fed rate cuts and coronavirus jitters still mean the US Dollar’s outlook is lower.

Pound (GBP) Exchange Rates Edge Higher on Rival Weakness but Covid-19 Jitters Weigh

Following last week’s board-based plummets, the Pound (GBP) has been rebounding slightly since markets opened this morning.

Investors are buying the British currency back from its worst levels against the US Dollar. The US Dollar spent the second half of last week advancing, so its slightly weaker movement today is making a GBP/USD rebound easier.

However, the Pound’s potential for gains is limited. The Pound lacks the drive to sustain further gains, as concerns over the coronavirus’ potential impact in Britain is limiting Sterling appeal.

The number of cases in Britain is rising. Markets are speculating that further rate cut action from the Bank of England (BoE) following last week’s emergency rate cut. These factors are all keeping pressure on the Pound outlook.

US Dollar (USD) Exchange Rates Hit by Federal Reserve’s New Emergency Rate Cut

On Sunday, the Federal Reserve announced another emergency interest rate cut.

Following the Fed’s 50 basis point emergency interest rate cut earlier in March, the bank took further action as Asian markets opened for the new week.

The Fed cut rates by a considerable 100 basis points, with the headline interest rate slashed from 1.25% to 0.25%.

The US Dollar (USD) slumped when markets opened as a result of the rate cut. However, its losses were limited as it continues to benefit from market safe haven demand.

Last week saw the US Dollar surge on safe haven demand as Fed rate cut bets finally cooled. As markets had already expected the Fed to cut rates this low, the US Dollar’s potential for further losses this morning was limited.

Still, analysts believe continued weakness is likely for the US Dollar as the Fed keeps easing. According to Analysts from ING:

‘For the Dollar, we think the new QE (quantitative easing) scheme will ultimately bring the Dollar lower. The exceptionalism of US growth and rates is gone and QE is a policy to weaken the Dollar,’

Pound to US Dollar (GBP/USD) Exchange Rate Rebound Could Extend if US Outlook Worsens

While the US Dollar (USD) has been benefitting from safe haven demand again since last week, the currency remains sensitive to the US economic outlook.

Federal Reserve easing speculation and the worsening coronavirus pandemic have dampened the US economic outlook. The US Dollar has the potential to see further weakness on these factors going forward.

The Pound (GBP), on the other hand, remains limp. Weak on rising concerns over how Britain will handle Covid-19, but stronger than currencies more strongly correlated to risk and trade, the Pound will be driven by movement in rivals.

UK job market data and US retail sales results are due tomorrow. The US data could boost the US Dollar slightly if it beats forecasts.

Overall though, the Pound to US Dollar (GBP/USD) exchange rate is likely to be driven by the strength of risk-sentiment and the safe haven US Dollar.

Josh Jeffery

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