Pound US Dollar (GBP/USD) Exchange Rate Bounces Back as Fed Unleashes QE

Shock Fed Quantitative Easing Announcement Buoys Pound US Dollar (GBP/USD) Exchange Rate

As the Federal Reserve announced another surprise burst of monetary policy action this helped to limit the downside potential of the Pound Sterling to US Dollar (GBP/USD) exchange rate.

With the central bank appearing to announce an apparently unlimited round of quantitative easing the US Dollar (USD) failed to hold onto its stronger footing.

This move came in the wake of the Senate’s failure to approve a significant funding package aimed at shoring up the US economy in the face of the current pandemic.

Even in the absence of increased fiscal support the Fed’s latest measures could help to shore up businesses being hit by the wave of economic disruption, helping to calm market anxiety.

Once the initial impact of the surprise starts to fade, however, this could see USD exchange rates recovering some of their ground as fears over the health of the global economy linger.

GBP Exchange Rates Vulnerable to Soft UK Services PMI

The release of March’s provisional UK services PMI could see Pound Sterling (GBP) taking another leg lower against its rivals tomorrow.

While the sector delivered solid expansion in February forecasts point towards the index slipping below the neutral baseline of 50 this month.

Evidence that the unfolding impact of the Covid-19 crisis has pushed the service sector into a state of contraction could weigh heavily on GBP exchange rates.

As the sector accounts for more than three quarters of the UK gross domestic product any slowdown here would sharply raise the odds of a potential recession, dragging the Pound down.

Signs of Manufacturing Sector Slowdown to Limit US Dollar Strength

Further signs of weakness from the US economy may put a dampener on USD exchange rates over the coming week, meanwhile.

Fresh evidence of a loss of momentum within the manufacturing sector, in particular, could see the US Dollar struggling to return to its bullish trend.

If the Richmond Fed manufacturing index dips deeper into negative territory this may add to concerns over the outlook of the world’s largest economy, with further deterioration looking likely over the coming months.

However, as developments surrounding Covid-19 continue to dominate the market outlook the US Dollar could still benefit from a fresh wave of risk aversion.

As long as the US government struggles to push through fiscal support measures worries over the global economy look set to keep the GBP/USD exchange rate under pressure.

Limited Room for Pound Support on BoE Meeting

Thursday’s Bank of England (BoE) policy meeting could prove rather anticlimactic in the wake of its recent emergency policy action.

With interest rates already at a record low of 0.1% the potential for any further policy changes looks limited at this stage.

Even so, the GBP/USD exchange rate could see volatility on the back of the meeting as markets gauge the outlook of policymakers.

Any indication that the BoE could loosen monetary policy further in the months ahead would diminish the appeal of the Pound as confidence in the economic outlook continues to deteriorate.

Louisa Heath

Contact Louisa Heath