Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted on Hopes Trump Will Lift Restrictions
UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat this afternoon, leaving the pairing trading at around $1.2501.
US jobless data revealed that another 5.2 million Americans claimed unemployment, sending total claims over the last month over 20 million.
This emphasised the worsening economic downturn caused by the coronavirus pandemic.
Commenting on this, Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania said:
‘The decline in economic activity is breathtaking. While we will see an initial upturn once the economy reopens, the strength and length of that recovery is not clear at all.’
However, the pairing remained flat on the hopes US President Donald Trump would lift the stay-at-home restrictions.
Market analyst at AxiCorp, Milan Cutkovic noted:
‘Expectations for economic data and the current earnings season are already extremely low [but] these figures could act as a reminder that the global economy is facing a deep recession and that recovery might take longer than initially expected.
‘Despite the numerous economic stimulus packages and signs of stabilization from the Covid-19 crisis, it is still too early for investors to relax.’
Pound Sterling US Dollar (GBP/USD) Exchange Rate Falls as US Recession Fears Buoy Safe-Haven USD
The Pound Sterling US Dollar (GBP/USD) exchange rate edged lower this morning, leaving the pairing trading at around $1.2487.
Thursday saw the US Dollar edge higher against a handful of currencies. Disappointing retail and factory data from the US showed the severity of the economic damage from the coronavirus pandemic.
Traders flocked back to the safety of the ‘Greenback’ as the data provided further evidence the United States had fallen into a deep recession.
Commenting on this, Kazushige Kaida, head of foreign exchange at Tokyo Branch of State Street noted:
‘The Dollar is maintaining its momentum following US data yesterday.
‘But the main player in the market now is short-term leveraged accounts, or hot money. It is not like a lot of investors are taking part in this.’
Sterling (GBP) Slumps as IMF Backs Brexit Extension
Meanwhile, on Thursday, the head of the International Monetary Fund (IMF) stated the UK should ask for an extension to its post-Brexit transition period.
Head of the IMF, Kristalina Georgieva noted that due to the uncertainty caused by the coronavirus pandemic, Britain should ask for an extension.
Speaking to BBC Radio on Thursday, Kristalina Georgieva said:
‘It is tough as it is. Let’s not make it any tougher.
‘My advice would be to seek ways in which this element of uncertainty is reduced in the interests of everybody, of the UK, of the EU, the whole world.’
This came several days after the IMF’s warning that the global economy was headed for its steepest downturn since the 1930s Great Depression.
US Manufacturing Suffers Largest Fall Since 1946
On Wednesday, data revealed that US retail sales plummeted by -8.7% in March.
This was the largest decline since the government began tracking the data in 1992.
The report was released as millions of Americans lost their jobs and is the most concrete evidence that the US economy was in the midst of a deep recession.
According to Chris Rupkey, chief economist at MUFG in New York:
‘Economists have long imagined over the years what a new Great Depression would look like, but today they can stop thinking about it.
‘Things will plainly never be the same again for consumers and factories where everyone in the country will have to make do with less.’
Meanwhile, in separate data released by the US Federal Reserve, US manufacturing output suffered the largest slump since February 1946.
According to James Knightley, Chief international economist at ING:
‘Given the scale and breadth of the US shutdown, our best guess is the economy contracts by around 13% peak-to-trough before we start to see a rolling process of re-opening in the United States from mid-May.
‘This will involve some ongoing form of social distancing meaning that a return to ‘business as usual’ could take many months – we don’t expect the lost output to be fully recovered until mid-2022.’
Pound US Dollar Outlook: US Jobless Data in Focus
Looking ahead, the risk-off mood is likely to continue which would cause the US Dollar (USD) to rise further against the Pound (GBP).
Investors will be looking to today’s US jobless claims data, which is likely to show initial claims rising sharply once again.
Over the last three weeks, claims have jumped by over 16 million, and forecasts suggest another gain of over five million this week.
If initial claims rise higher than expected and add to increasing signs the US is in a deep recession, risk appetite is likely to suffer. This would cause the Pound US Dollar (GBP/USD) exchange rate to slump.