GBP/USD Exchange Rate Slumps in Risk-Off Trade
The Pound to US Dollar (GBP/USD) exchange rate is on the defensive this morning as a souring of risk appetite in overnight trade weighs heavily on the pairing.
At the time of writing the GBP/USD exchange rate is trading at around $1.2689, having dropped roughly 0.3% from this morning’s opening rate.
US Dollar (USD) Appreciates as Risk Sentiment Sours
After stumbling in trade on Wednesday in response to the Federal Reserve’s latest policy meeting, a reversal in market risk appetite has sent the safe-haven US Dollar (USD) sharply higher this morning.
Ironically, this souring of market sentiment appears to come courtesy of the Fed, as its gloomy projections curtailed some of the recent optimism that the global economy could enjoy a sharp V-shaped recovery.
The Fed’s latest projection forecast the US economy is set to shrink 6.5% in 2020 and that unemployment is likely to remain elevated for some time, with Fed Chair Jerome Powell warning the US faces a ‘long road’ to recovery.
Watch Chair Powell's statement from the #FOMC press conference:
Intro clip: https://t.co/shINLGuIz9
Full video: https://t.co/dMxnZmFbXZ
— Federal Reserve (@federalreserve) June 10, 2020
The US central bank pledged to support the for ‘as long as it takes’, signaling it is likely to keep interest rates at near zero through to 2022.
Jim Reid, head of thematic research at Deutsche Bank, comments:
‘The Fed reiterated that it expects to maintain the near-zero fed funds rate until it is confident the economy is on track to achieve the central bank’s dual mandate. […] Powell reinforced this message with the line that they are not even “thinking about thinking about raising rates.’
Pound (GBP) Slips as UK Struggling to Get Control Over its Coronavirus Outbreak
Meanwhile, the Pound (GBP) is under pressure from both the downturn in market sentiment as well as ongoing concerns over the UK’s ongoing struggle with its coronavirus outbreak.
Boris Johnson has reportedly faced criticism from England’s chief medical officer Sir Chris Whitty for the government’s handling of the outbreak, with Whitty reported rejection the government’s suggestion to lower the coronavirus threat level.
The UK is still struggling to get to grips with Europe’s largest coronavirus outbreak, with GBP investors fearing this is likely to derail the government’s plans to start reopening the economy.
GBP/USD Forecast: Plunge in GDP to Propel Sterling Even Lower?
Looking ahead, the Pound to US Dollar (GBP/USD) exchange rate looks set to face additional headwinds at the end of this week’s session, with the publication of the UK’s latest monthly GDP release.
Economists forecast April’s figures will report a startling 20% plunge in growth as the first full month of lockdown enacted a heavy toll on UK economic activity.
The dramatic drop in GDP will offer some insight into the depth of the recession that the UK is now facing, and is likely to trigger some GBP selling in response.
In the meantime, USD investors will be keeping a close eye on this afternoon’s initial jobless claims.
The rate of jobless claims has eased in recent weeks, giving some hope that the US is past the worst of its unemployment crisis, should this trend continue then we could see the US Dollar strengthen later today.