Pound US Dollar Exchange Rate Demand Limited as Sterling Rebound Slows
Investors are hesitant to keep selling the US Dollar (USD) much lower, so the Pound US Dollar (GBP/USD) exchange rate is struggling to hold its best levels. This week’s Pound rebound rally is running out of steam.
After opening this week at the interbank level of 1.35, GBP/USD briefly dipped before rebounding higher. Yesterday, GBP/USD touched on a high of 1.36 and the best level for the pair in two and a half years.
At the time of writing, GBP/USD is trending a little lower in the interbank region of 1.36. The pair has still recovered most of last week’s losses, but US Dollar resilience is limiting further Pound (GBP) gains.
Pound (GBP) Exchange Rates Slow but Outlook Remains Buoyant
The Pound’s bullishness has slowed since yesterday, following a big rebound earlier in the week.
Speculation that the Bank of England (BoE) will introduce negative interest rates has been largely offset. What’s more, expectations are rising that the UK will improve its coronavirus vaccine rollout.
Britain’s coronavirus infection rate is finally showing signs of slipping from their worst levels as well. Britain entered its third national lockdown last week as daily infections hit record highs.
According to Yohay Elam, Analyst at FXStreet:
‘Coronavirus cases have been dropping from the peak, providing hope that deaths – which have hit record highs – will decline as well. The decline in infections would also alleviate pressure on overstrained hospitals and calls by the opposition for even tighter restrictions.’
Many UK retailers announced holiday season results today. Sales at supermarket Tesco jumped 8.1% despite the pandemic.
Tesco delivered seven million groceries in the 6 weeks before Christmas equivalent to an extra £1bn of online sales. UK like-for-likes over 6 wk period to 9 January rose by 8.1 per cent while they were up by 6.7 per cent in the preceding third quarter
— Ashley Armstrong (@AArmstrong_says) January 14, 2021
US Dollar (USD) Exchange Rates Buoyed by Fiscal Stimulus Hopes
The safe haven US Dollar’s appeal has been limited lately. While it has rebounded from its worst levels due to lockdowns in major economies and hopes for US economic recovery, the recovery has been limited.
GBP/USD is trending near its best levels in years despite the US Dollar’s recovery attempt.
Still, the US Dollar is weighing on the Pound today. Investors are hesitant to sell the US Dollar too much. Expectations are high that the incoming US Joe Biden will announce a bigger fiscal policy package that will support the US economy.
Hopes that US monetary policy could be tapered are also boosting USD. Yohay Elam at FXStreet said:
‘Jerome Powell, Chairman of the Federal Reserve, speaks later in the day and he may opt for taking the other direction – gradually tapering down the bank’s support, as the economy needs less of it’
Pound US Dollar (GBP/USD) Exchange Rate Could Strike New Multi-Year Highs
If the Pound continues to climb, the Pound to US Dollar exchange rate has the potential to hit new multi-year highs.
The Pound’s rally is steadying for now, but further support for the British currency could mean more gains before markets close for the week.
Tomorrow will see the publication of this week’s most influential UK ecostats. UK trade balance, production and growth rate results from November will be published.
If Britain’s economy performed better than expected in November, it could boost hopes that Britain is weathering the coronavirus pandemic. This could make the Pound more appealing.
On the other hand, an upcoming speech from Federal Reserve Chairman Jerome Powell could boost the US Dollar tonight if it is more hawkish than expected.
Any signals that the Fed could taper US monetary policy could boost US Dollar demand,
Pound US Dollar exchange rate investors will also closely watch tomorrow’s US retail sales results from December.