GBP/USD Exchange Rate Rises as World Economies Reopen
The Pound to US Dollar (GBP/USD) exchange rate rose by 0.4% today, with the pairing currently trading around $1.24.
The US Dollar (USD) has suffered from a strong risk-on start to the week, with investors flocking to risky assets as optimism grows as the world’s economies continue to reopen.
However, the ‘Greenback’ could receive a boost if US-China global political tensions escalate.
Any signs of Beijing’s new Hong Kong security law coming under further criticism from Washington would prove USD-positive as safe-haven demand would swiftly return.
US President Donald Trump boosted risk sentiment on Friday after he stopped short of announcing any specific new sanctions on China, leaving many investors optimistic that a ‘phase one’ trade deal between the two superpowers could still stand.
Meanwhile, China has continued to goad the US over the George Floyd protests across multiple states. Consequently, we could see US-China trade relations continue to deteriorate as the week progresses.
Hu Xijin, the editor-in-chief at the Chinese nationalist newspaper, Global Times, wrote:
‘US House Speaker Nancy Pelosi once called the violent protests in Hong Kong ‘a beautiful sight to behold.’… US politicians now can enjoy this sight from their own windows.’
In US economic data, today will see the release of May’s ISM Manufacturing PMI for May, which is expected to remain in the doldrums at 43. As a result, we could see the ‘Greenback’ suffer as America’s economy continues to suffer amid the coronavirus pandemic.
Pound (GBP) Rises as UK Lockdown Measures Continue to Ease
The Pound (GBP) edged higher today as England’s schools reopen as lockdown measures continue to ease in the wake of the peak of the coronavirus crisis in the UK. As a result, Sterling traders have become increasingly optimistic that the UK could make a faster-than-expected economic recovery.
David Owen, an economist at the financial company, Jefferies, commented last week:
‘Everything points to a slow, painful recovery, but we still think a recovery is under way.’
Today also saw UK stocks rally as Covid-19 lockdown restrictions are eased worldwide, with British car showrooms and outdoor markets set to reopen again as of from today, with six people being able to meet outside at a 2-metre distance.
In UK economic data, today saw the release of the UK Markit Manufacturing PMI for May. This confirmed forecasts and rose from 40.6 to 40.7.
Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, commented on the data:
‘Even with the slight uplift in May’s sentiment as firms began to recover from the initial shock and looked to the future, optimism remained depressed. Worries over safety for returning staff and repairs to broken supply chains will be uppermost in business minds, and are obstacles to be overcome before real recovery can begin. Uncertainty remains the watchword for the months ahead.’
GBP/USD Forecast: Could US-China Trade Tensions Boost the Safe-Haven Greenback This Week?
US Dollar (USD) investors will be keeping a close eye on US-China trade developments this week. However, if relations between the two superpowers continue to deteriorate, then we could see the safe-haven ‘Greenback’ benefit.
USD traders will also be looking ahead to Wednesday’s release of the US ADP Employment Change report for May. Any signs of US employment falling deeper could drag on the US Dollar.
Wednesday will also see the release of the final UK Markit Services PMI for May. However, with the UK’s largest sector expect to remain in the doldrums, this is unlikely to prove Pound-positive.
The GPB/USD exchange rate could continue to edge higher this week if risk-sentiment remains high. Although, any signs of global political tensions would boost the US Dollar and weaken the pairing.