Pound US Dollar (GBP/USD) Exchange Rate Near 35-Year Low as Safe-Haven Demand Eases

Pound US Dollar (GBP/USD) Exchange Rate Lifted from 35-Year Low as Global Stimulus Continues

After hitting its lowest level since 1985 the Pound Sterling to US Dollar (GBP/USD) exchange rate showed some signs of stabilisation overnight.

As both the Reserve Bank of Australia (RBA) and European Central Bank (ECB) launched further monetary loosening measures this helped to limit the sense of safe-haven demand.

With market turmoil temporarily easing the US Dollar (USD) struggled to find any fresh upside momentum against its rivals as investors continued to assess the economic risk of Covid-19.

Even so, with the odds of an imminent global recession still high USD exchange rates were able to hold onto a generally positive footing this morning.

Sharp Dip in Manufacturing Index Set to Knock US Dollar

Demand for the US Dollar could diminish further this afternoon if March’s Philadelphia Fed manufacturing index weakens as forecast.

A sharp monthly dip from 36.7 to 10 for the index may undermine confidence in the outlook of the US economy, highlighting the vulnerability of the manufacturing sector.

Unless the world’s largest economy can demonstrate greater signs of resilience in the face of the Covid-19 crisis the potential for further US Dollar gains could prove limited.

If the latest jobless claims figures show an increase this may offer the GBP/USD exchange rate some traction, with doubts over the effectiveness of the US government’s response to the pandemic still lingering.

Pound Under Pressure as UK Government Response Fails to Impress

In spite of Chancellor Rishi Sunak’s fiscal stimulus pledge Pound Sterling (GBP) fell largely out of favour with investors this week.

Investors have concerns over the imminent ballooning of UK government debt in the face of the global economic volatility and the unanswered question of Brexit.

With businesses continuing to issue warnings over the financial hit of the Covid-19 pandemic fears of a deep quarterly growth contraction remain, to the detriment of GBP exchange rates.

As Friday’s public sector net borrowing report looks set to point towards government debt already having picked up in February the mood towards the Pound could sour further ahead of the weekend.

Global Risk Aversion to Limit US Dollar Downside

A lingering sense of market risk aversion is likely to keep USD exchange rates on a solid footing for the foreseeable future, meanwhile.

As the impact of the latest central bank interventions fades this could see the US Dollar gaining fresh ground against its rivals.

Unless investors see reason to believe that the stimulus measures will help to avoid the worst of the imminent global growth downturn safe-haven demand looks set to remain heightened.

If the US government follows through with its promised fiscal support this could put something of a dampener on USD exchange rates, on the other hand.

Any suggestion that the Federal Reserve could enact further monetary loosening would give investors reason to sell out of the US Dollar, helping to lift the GBP/USD exchange rate from its recent lows.

Louisa Heath

Contact Louisa Heath