GBP/USD Exchange Rate Falls Below $1.25 on Second Wave Fears

The Pound to US Dollar exchange rate edged higher at the start of the week, reversing some of last week’s losses. Although, Sterling held just above a three-week low as Brexit worries dampened sentiment.

What’s Been Happening: Second Wave Worries Buoys Safe-Haven USD

The US Dollar rallied over the course of last week as traders worried about the risks of a second wave of the coronavirus pandemic. Investors also worried about record coronavirus cases in six US states.

Weak sentiment over clashes between Indian and Chinese troops and downbeat assessments from the Federal Reserve’s Jerome Powell dampened risk appetite which offered the ‘Greenback’ further support.

GBP/USD slumped further, falling below $1.25 after the Bank of England (BoE) increased its bond-buying programme by a further £100 billion to support the economy.

Three Things to Watch Out for This Week

  1. UK Services PMI

Sterling could give up some of Monday’s gains on Tuesday following the release of Britain’s services PMI. While June’s flash data is expected to show major signs of improvement for the sector, the index is likely to remain firmly in contraction which will dampen Pound sentiment.

  1. Initial Jobless Claims

This week, traders will be focused on the latest US jobless claims data for the most up-to-date picture of the world’s largest economy. Will claims remain at high levels not seen during the 2008-2009 recession, as the labour market continues to struggle?

  1. US GDP

Dollar investors will also be eyeing this week’s US GDP. If the world’s largest economy suffers a large contraction in the first quarter due to the coronavirus pandemic and economists expect a larger decline in the current quarter, risk appetite will weigh on currencies such as the Pound and boost the safe-haven US Dollar.

GBP/USD Forecast

Looking ahead, the GBP/USD exchange rate could reverse Monday’s slight gains if risk appetite slumps further this week on US growth and labour market statistics.

Millie Empson

Contact Millie Empson