Pound to US Dollar (GBP/USD) Exchange Rate Flounders Near Decade Worst despite UK Stimulus

UK Government’s Stimulus Plans Fail to Boost Pound to US Dollar Exchange Rate

The Pound Sterling to US Dollar (GBP/USD) exchange rate continues to trend near its worst levels in years. This is despite UK Chancellor Rishi Sunak announcing a fresh set of stimulus measures for Britain’s economy overnight.

Following last week’s huge fall of almost 8 cents, GBP/USD is slipping even lower this week so far. GBP/USD opened this week at the interbank level of 1.22 and is currently trending just above yesterday’s low of 1.20.

This is among the lowest levels for GBP/USD in over a decade. The US Dollar (USD) continues to benefit from safe haven demand, while the Pound (GBP) slumps on the domestic coronavirus outlook.

There is potential for the Pound to recover slightly on stimulus though, if the US Dollar’s demand softens at all.

Pound (GBP) Exchange Rates Fail to Capitalise on UK Stimulus Measures

The UK government’s stance on the coronavirus pandemic has been ramping up this week. This has meant some highly volatile movement for the Pound (GBP).

Previously strong on hopes for economic resilience, the Pound has become more jittery as the impact of the virus on activity deepens.

UK Chancellor RIshi Sunak announced fresh fiscal stimulus measures to help protect Britain’s economy last night. He claimed the government would do “whatever it takes”, a phrase that markets did find reassuring.

However, markets remain anxious about the large number of layoffs. This meant the Pound was unable to capitalise on the news.

It follows UK Prime Minister Boris Johnson’s Monday comments for citizens to avoid socialising and work at home if possible.

US Dollar (USD) Exchange Rates Hold Ground as Safe Haven Demand Persists

The US Dollar (USD) has seen resurgent demand in the last few sessions.

While the Federal Reserve cut US interest rates over the weekend, rate cuts are largely priced in to the US Dollar already. This is freeing up the currency to be supported more by market demand for safe havens.

As the US Dollar continues to benefit from safe haven demand despite a weaker US economic outlook, this current strength may continue.

According to Paul O’Connor, Head of Multi-Asset at Janus Henderson Investors, there is little sign that risk-aversion will lighten any time soon:

‘The missing fundamental ingredient for a sustainable recovery in risk appetite is some evidence that the growth of global Covid-19 infection rates is peaking,

Clearly, we are not there yet.’

Pound to US Dollar (GBP/USD) Exchange Rate Awaits Further Government Measures

Despite the UK government’s fresh stimulus measures generally making investors feel a little more optimistic, there is lingering concern that the government is not moving quickly enough.

This, as well as anxiety over the fear of Brexit negotiations being negatively impacted, are weighing heavily on the Pound (GBP) outlook.

As a result, Pound investors will remain focused on the government’s continued reactions to the coronavirus crisis.

If the government delivers more stimulus to help smaller businesses and confidence, the Pound is more likely to mount a sustained recovery.

However, its potential for gains against the strong US Dollar (USD) is limited as well.

Safe haven demand is only likely to persist and intensify with no peak in sight to the coronavirus pandemic yet. Overall, the Pound to US Dollar (GBP/USD) exchange rate will remain pressured and markets highly jittery.

Matthew Andrews

Contact Matthew Andrews