GBP/USD Strikes New Multi-Year Best as Negative Interest Rate Speculation Softens
The Pound Sterling to US Dollar (GBP/USD) exchange rate has been recovering this week. Its recovery extended yesterday as Bank of England (BoE) negative interest rate speculation softened. This has helped the pair to hit a new multi-year high.
After opening this week at the interbank level of 1.35, GBP/USD briefly dipped before rebounding again. Since yesterday, GBP/USD has seen a surge in demand.
GBP/USD currently trends near highs of 1.36 – the best levels for the pair since mid-2018, two and a half years ago.
Negative interest rate speculation had been keeping pressure on the Pound. What’s more, the US Dollar’s (USD) own weakness is likely to continue.
Pound (GBP) Exchange Rates in Relief Rally after Bank of England Governor Shifts Expectations
Another national UK coronavirus lockdown led to a surge in speculation that the Bank of England (BoE) could be pressured into introducing negative interest rates in the near future. This played a big part in the Pound’s recent weakness.
However, yesterday’s comments from Bank of England Governor Andrew Bailey were a surprise to markets. Bailey showed hesitance to implement negative interest rates, saying there were many issues with them.
According to Yohay Elam, Analyst at FXStreet:
‘Bank of England Governor Andrew Bailey stated that negative interest rates are ‘controversial’ – seeming to put the discussion to rest.’
US Dollar (USD) Exchange Rates Lack Drive to Keep Advancing
At the beginning of the week, the US Dollar saw stronger demand. As a safe haven, it benefitted from market risk-aversion amid worsening global coronavirus fears and US fiscal stimulus speculation.
However, this movement was brief. Analysts note that the US Dollar trend is still broadly bearish, and the US currency is expected to keep falling.
The latest US data has been mixed. After last week’s disappointing US Non-Farm Payrolls report the US economic outlook has not been strong enough to support a lasting USD rebound.
Yesterday’s US JOLTs opening data showed that there were more US job openings than expected.
Pound to US Dollar (GBP/USD) Exchange Rate Could Climb Higher on Fed Dovishness
The Bank of England (BoE) was in focus in the first half of the week, but the shift of GBP/USD could shift over to the Federal Reserve in the coming days.
Many Federal Reserve officials will hold speeches in the coming sessions. If Fed officials indicate that they will keep US monetary policy ultra loose and will not taper any quantitative easing (QE), the US Dollar is unlikely to have much room to recover.
Dovish Fed members could keep the US Dollar on its broad loss-streak, and the Pound to US Dollar exchange rate could climb even higher.
According to Analysts at ANZ:
‘Until greater economic certainty emerges, which it will do in time, Sterling may underperform. We forecast that it will rise against the USD as part of a broad-based Dollar sell-off, but anticipate that it can underperform on the crosses.’
As well as comments from Fed officials, Pound to US Dollar (GBP/USD) exchange rate investors will be watching Friday’s UK growth and US retail sales results.