GBP/USD Exchange Rate Edges Higher as US Economic Gloom Weighs on US Dollar
The Pound to US Dollar (GBP/USD) exchange rate rose to around $1.27, with the pairing up by 0.3% on the day’s opening rate. USD has fallen today as markets focus squarely on this evening’s Federal Open Market Committee (FOMC) meeting.
The Federal Reserve is expected to hold interest rates at 0.25% today with no other major policy changes. However, comments from numerous Fed officials have left many ‘Greenback’ investors concerned. America’s economic rebound, they said, looks like it will continue to flounder throughout the Covid-19 crisis.
The National Bureau of Economic Research (NBER) said that economic growth had peaked in February. But, it added, this has faced its first downturn since before the Financial Crisis in 2008.
NBER was downbeat in its assessment of the American economy, saying that the US had officially entered its first recession since 2009:
‘The committee recognizes that the pandemic and the public health response have resulted in a downturn with different characteristics and dynamics than prior recessions. Nonetheless, it concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.’
Coming up, today will see the release of the latest – and final – US inflation figures for May. Any further signs that the US economy is struggling would prove USD-negative.
Pound (GBP) Rises as Hopes Grow for UK Economy as Retail Sector is Set to Reopen
Sterling benefited from Downing Street’s announcement that the UK’s retail sector would reopen from the 15th June. As a result, GBP investors have become more hopeful that Britain’s economy could make a quicker-than-expected recovery.
Meanwhile, today saw the Organisation for Economic Cooperation and Development (OECD) warn that the UK’s economic downturn could be worse that Italy’s, Spain’s or Germany’s. The Paris-based think tank said that the UK GDP could fall by -11.5%, worse than France’s -11.4%.
Laurence Boone, the OECD’s chief economist, commented:
‘By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments.’
Post-Brexit concerns are also dominating GBP investor’s attention today. This follows news that Downing Street would not be asking for an extension of the transition period beyond December.
However, with UK-EU talks expected to continue until the end of the year, some Sterling traders are more hopeful that the two powers could secure a deal.
GBP/USD Outlook: Could US-China Trade Tensions Spark off Safe-Haven Demand for the US Dollar?
US Dollar (USD) investors will be awaiting tomorrow’s release of the US initial jobless claims report. However, any further signs that the American economy is struggling would begin to weigh on the ‘Greenback’.
Global risk-sentiment will drive the USD for the rest of the week. Any signs of US-China trade tensions flaring up would increase safe-haven demand and boost the ‘Greenback’.
The GBP/USD exchange rate will be influenced by the UK’s coronavirus developments. We could see Sterling edge higher if the British economy shows a more substantial reboot in the coming weeks.