Pound US Dollar (GBP/USD) Exchange Rate Rises, But Could Growing US Unemployment Further Weaken the ‘Greenback’?

GBP/USD Exchange Rate Edges Higher as US Economic Outlook Darkens

The Pound to US Dollar (GBP/USD) exchange rate rose today as the ‘Greenback’ continues to suffer from the worst US economic contraction since 2008. The pairing is currently trading around $1.247.

Yesterday also saw the Federal Reserve take a notably dovish tone on the US economy. As a result, this left US Dollar investors skittish as the world’s largest economy continues to struggle due to the coronavirus pandemic.

Jerome Powell, the Fed’s Governor, commented:

‘It may well be the case that the economy will need more support from all of us, if the recovery is to be a robust one.’

Furthermore, Mr. Powell warned that the next fall in the US economy would be ‘unprecedented’. He also argued that despite the dire US data it had still not caught up to the situation at hand.

Today US Dollar (USD) investors will be looking ahead to the US Initial Jobless Claims report for April. If American joblessness continues to rise, then we could see the ‘Greenback’ further suffer from growing pessimism over the economy.

Lewis Alexander, an Economist at Numura, was optimistic however, commenting:

‘We expect initial jobless claims to continue to decline on a weekly basis. Many workers affected by closures of nonessential businesses have likely already filed for benefits at this point.’

‘In addition, the strong demand for Paycheck Protection Program (PPP) loans, part of the CARES Act passed on 27 March, suggests some room for labor market stabilization.’

Pound (GBP) Rises Despite Growing Concerns Over UK Retail Sector

The Pound (GBP) rose against the weaker ‘Greenback’ today despite rising fears over the British economy.

Today saw Helen Dickinson, the Chief Executive of the BRC, comment that 69% of non-food retailers have been ‘significantly’ impacted by the coronavirus pandemic.

Dickinson added:

‘There is no way that anybody is expecting that demand will revert to what it was before – there will be a slow gearing back up.’

‘What implementing social distancing will mean is that normal capacity to serve customers will be restricted and, certainly from a public perspective, I have no doubt that people will be very cautious about how they shop, for safety reasons and because of pressure on money in their pockets.’

As a result, Sterling has remained under pressure from growing fears that the UK could see a recession in the second-quarter.

Furthermore, Lloyds Bank claimed that it has lost around 95% of its profits as it attempts to cover a surge in bad debts. With rising concerns over businesses and consumers not being able to pay back their debts, the bank was forced to borrow £1.4 billion to cover the loss.

António Horta-Osório, the Chief Executive at Lloyds, commented:

‘The economic outlook is clearly challenging with the longer-term outcome dependent on the severity and length of the pandemic and the mitigating impact of Government and other measures in the UK and across the world.’

Meanwhile, today will see Prime Minister Boris Johnson outline ways to counter the coronavirus. However, if the Government makes any hints toward easing lockdown measures, then we could see Sterling rise higher.

GBP/USD Forecast: Could UK Lockdown Easing Plans Boost Sterling?

US Dollar (USD) investors will be looking ahead to tomorrow’s release of the US ISM Manufacturing PMI for April. If America’s manufacturing sector continues to struggle this month, then we may see the ‘Greenback’ tumble further.

Tomorrow will also see the release of the UK Markit Manufacturing PMI for April. However, with predictions of a steeper fall into contraction territory, this could likely turn Pound-negative.

The GBP/USD exchange rate will remain sensitive to coronavirus developments this week. As result, we could see Sterling rise on hopes of further UK lockdown easing plans.

David Moore

Contact David Moore


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