Pound to US Dollar (GBP/USD) Exchange Rate Falls as BoE Predicts Worst UK Economic Crash in 300 Years

GBP/USD Exchange Rate Sinks as Sterling Investors Await Further Lockdown Details

The Pound to US Dollar (GBP/USD) exchange rate slipped by -0.2% this morning after the Bank of England (BoE) predicted the worst economic crash in 300 years for Britain. The pairing is currently trading around $1.238.

Peter Dixon, an economist at Commerzbank, was downbeat in his assessment, saying:

‘Current conditions are unprecedented in our lifetime and all forecasters are struggling to make out where the economy stands now, never mind what happens in future. But it is clear that the next few months are going to produce some of the biggest output falls on record.’

As a result, the Pound (GBP) kicked off this week in a subdued state, with Sterling investors becoming increasingly concerned over the UK’s economy.

Meanwhile, GBP traders are continuing to absorb the ramifications of Prime Minister Boris Johnson’s changes to the UK’s lockdown. However, due to the criticisms over yesterday’s lack of clarity in the TV address, Sterling traders will be awaiting further clarifications.

Today will see Boris Johnson provide more details on the lockdown changes. If this boosts the UK’s economic outlook, then we could see the GBP/USD exchange rate edge higher.

US Dollar (USD) Rises Despite Dwindling Safe-Haven Demand

The US Dollar (USD) rose against the weakened Pound (GBP) despite weakening demand for safe-haven currencies. As a result of world’s easing lockdown restrictions, investors have sought out riskier assets instead.

Nevertheless, the ‘Greenback’ has benefited from New York Governor Andrew Cuomo’s announcement that hospitalizations had decreased over the past few days.

Today also saw the US Dollar (USD) suffer from the People’s Bank of China’s (PBOC) announcement that it would boost China’s stimulus programme in the wake of the major peak of the nation’s coronavirus.

The PBOC promised to deploy ‘more powerful’ measures to reboot China’s economic growth.

However, the PBOC was also cautious in its statement:

‘But at present, challenges faced by China’s economic development are unprecedented, we must fully consider difficulties, risks and uncertainties.’

Consequently, USD has suffered a sell-off in favour of riskier assets like the Australian Dollar and New Zealand Dollar.

GBP/USD Forecast: Could Weak US Inflation Send ‘Greenback’ Plummeting?

US Dollar (USD) investors will be awaiting tomorrow’s release of April’s CBI report. However, if US inflation continues to fall last month, then we could see the ‘Greenback’ shed some of its gains.

Tomorrow will also see the release of April’s US NFIB Business Optimism Index. If this falls considerably below consensus, however, then we could see USD suffer.

Meanwhile, Sterling traders will be awaiting tomorrow’s release of last month’s UK BRC Like-for-Like Retail Sales report. With UK retail sales expected to fall dramatically in the wake of the coronavirus, this is unlikely to boost GBP.

The GBP/USD exchange rate will remain sensitive to further details over the UK’s nationwide lockdown this week. If hospitalisations continue to decrease, then we could see Sterling rise on hopes of the nation’s economic recovery.

David Moore

Contact David Moore