Pound US Dollar (GBP/USD) Rallies on Encouraging Coronavirus Drug Trial

This Week Reviewed

The Pound to US Dollar exchange rate edged higher at the start of the week as risk appetite increased after encouraging results from a coronavirus drug trial.

However, UK data revealed that in the first full month of lockdown, the number of people in the country claiming unemployment benefits skyrocketed.

Last Week: US Economy on Track for Largest Contraction Since Great Depression

The pairing slumped over the course of last week, as traders worried about the easing of coronavirus lockdown measures in the UK and the chances of a second wave of coronavirus infections as Wuhan reported its first cluster of cases since the city lifted its lockdown.

Risk appetite was left under pressure as US retail sales suffered a second consecutive month of declines, setting the economy on track for its largest contraction in Q2 since the Great Depression.

What to Watch Out for This Week:

  1. FOMC Minutes

Looking ahead to Wednesday, the US Dollar could make gains following the release of the Federal Open Market Committee monetary policy meeting minutes.

If the minutes spark a slump in risk appetite as Federal Reserve policymakers highlight the impact the coronavirus will have on the world’s largest economy, traders will rush back to the safety of the ‘Greenback’.

  1. UK Services PMI

Meanwhile, the Pound is likely to suffer losses against USD following the release of flash PMI data. If Markit’s data reveals May’s flash PMI surveys for the manufacturing and services sectors disappoint, GBP will slide.

While the closely-watched UK services PMI is likely to edge higher after plummeting to an all-time low in April, it will still remain firmly in contraction territory and weigh on Sterling.

  1. US Jobless Claims

Thursday could see the Dollar continue to make gains following the release of last week’s initial jobless claims. While the number of new claims has shown signs of stabilisation each week, if the data reveals an unprecedented number of Americans continue to file for unemployment benefits, risk sentiment will slide further.

GBP/USD Outlook:

The GBP/USD exchange rate is likely to edge lower if fragile risk appetite is offered a further blow from dovish Fed minutes and if flash UK PMI surveys paint a dire picture of May’s activity.

Millie Empson

Contact Millie Empson