Pound US Dollar Exchange Rate Stumbles as Safe-Haven Demand Rises

With the incoming US administration signalling its intention not to seek a weaker US Dollar the GBP/USD exchange rate was left on the back foot.

Last Week: Latest Surge in Initial Jobless Claims Limits US Dollar Upside

An unexpectedly sharp uptick in the latest US initial jobless claims reading saw the US Dollar come under pressure ahead of the weekend.

With 965,000 new jobless claims filed on the week signs continued to point towards a weakening labour market.

As investors started to reassess the likely size of the upcoming fiscal stimulus package, though, a renewed sense of market risk appetite helped to shore up USD exchange rates once again.

Support for the Pound, on the other hand, weakened in the face of a -2.6% monthly contraction in November’s UK gross domestic product, demonstrating the negative impact of the second national lockdown.

Three Things to Watch out for This Week

1. UK Inflation Rate

Even so, the GBP/USD exchange rate could find a rallying point on Wednesday if the latest set of UK inflation data offers investors cause for confidence.

If the headline inflation rate picks up on the year as forecast this could encourage the Bank of England (BoE) to adopt a less pessimistic outlook, limiting the risk of any monetary loosening to come.

2. UK CBI Business Optimism Index

On the other hand, with forecasts pointing towards a decline in the first quarter CBI business optimism index worries over the health of the UK economy could pick up once again.

As long as businesses express greater anxiety over the outlook in the face of the ongoing Covid-19 crisis fears of a deeper economic contraction could weigh on demand for the Pound.

3. US Markit Manufacturing PMI

Another resilient showing from the US manufacturing PMI may offer USD exchange rates an additional boost on Friday, meanwhile.

Evidence that the manufacturing sector continued to hold up even in the face of pandemic disruption and weaker global demand could see the US Dollar extending its uptrend further.

GBP/USD Outlook

If markets see any fresh reason to bet that the UK economy will remain in contraction in the first quarter this could drag the GBP/USD exchange rate lower in the days ahead.

Louisa Heath

Contact Louisa Heath