GBP/USD Exchange Rate Surges 3% to Recapture $1.18 as UK Prepares New Stimulus Measures

GBP/USD Exchange Rate Soars on Hopes for New Stimulus  

The Pound to US Dollar (GBP/USD) exchange rate is galloping higher this morning, recovering a good portion of its losses from earlier in the week on the expectation for fresh stimulus measures from the UK. 

At the time of writing the GBP/USD exchange rate is trading at around $1.1831, rising about 3% from this morning’s opening rate. 

Pound (GBP) Rallies as UK Prepares Stimulus Package to Protect Jobs 

The Pound (GBP) if flying high this morning, in response to reports Chancellor Rishi Sunak is set to announce new stimulus measures aimed at protecting jobs and wages. 

As the UK economy continues to reel from the disruption caused by the coronavirus crisis, business groups and union leaders have called on the government to help businesses survive and people keep their jobs by subsiding wages. 

In Thursday’s coronavirus briefing, Prime Minister Boris Johnson urged business to ‘stick by their employees, because we’re all going to need them’ and indicated we could expect to hear more about what the government is doing to help protect jobs on Friday. 

GBP investors have welcomed the news, after fearing that the measures already announced would do little to protect jobs. 

One proposal reportedly under consideration is that the government could subsidise up to 75% of wages for the next three months, following the example of countries in Europe. 

Dame Carolyn Fairbairn, director general of the Confederation of British Industry (CBI) said: 

‘Many other countries have now done this – France, Germany, Spain, Italy have put employee wage support in place and if that comes through quickly I believe there are businesses who will take a different decision because they want to keep their people and they want their businesses to be viable for when we recover.’ 

The new measures will accompany the £330bn in loans and £20 in other aid which has already been pledged by the government. 

US Dollar (USD) Dethroned Liquidity Concerns Ease

Meanwhile, after skyrocketing through the first half of the week, the US Dollar (USD) is falling back to earth as investors being to unwind their positions in the safe-haven currency. 

Amidst extremely overbought conditions, efforts by central banks to ease concerns over liquidity appear to have ended the rush for the US Dollar as fears of a potential USD shortage begin to fade. 

On top of this the wave of stimulus measures announced by governments and central banks around the world have further dented demand for the ‘Greenback’ as they help to improve market risk sentiment. 

GBP/USD Forecast: Further Volatility Ahead? 

Looking ahead, with no end to the crisis in sight it’s safe to assume we haven’t seen the last of the volatility in the Pound to US Dollar (GBP/USD) exchange rate. 

With the coronavirus still spreading rapidly throughout the western world we may yet see the situation deteriorate further, at which time demand for the safe-haven US Dollar is likely to soar. 

Meanwhile, next week’s publication of the UK’s latest PMI figures will provide the first real insight into how the UK economy is holding up amidst the crisis. 

Expect this to weaken the Pound if private sector activity took a tumble this month.  

Matthew Andrews

Contact Matthew Andrews