Pound to US Dollar Exchange Rate Struggles to Sustain Gains as Both Currencies Strengthen
The Pound (GBP) and US Dollar (USD) have been two of the strongest major currencies this week, leaving the Pound Sterling to US Dollar (GBP/USD) exchange rate volatile. Sterling’s gains on vaccine hopes are not strong enough to offset the US Dollar’s safe haven appeal.
Since opening this week in the interbank region of 1.36, GBP/USD has spent the week fluctuating as both currencies strengthen. Sterling’s strength remains significant, as GBP/USD touched on a new two-and-a-half-year best of 1.37 in the middle of the week.
However, the US Dollar’s resilience has been better. At the time of writing on Friday, GBP/USD trends near the week’s opening levels in the interbank region of 1.36.
Some analysts predict the Pound’s strength is limited, so there may be losses ahead for the Pound to US Dollar exchange rate.
Pound (GBP) Exchange Rates Strong amid Coronavirus Vaccine Optimism
While it has been unable to sustain further gains against the US Dollar, the Pound has still seen strong performance this week overall.
Investors continue to buy the Pound on coronavirus vaccine hopes. Britain’s vaccine rollout has advanced more than those of other major economies, so the Pound is a popular currency for market optimism over vaccine developments.
News that another vaccine from Novavax is seeing effective UK trials also supported the Pound today.
Still, some analysts warn that market optimism around the Pound has been overdone. Concerns over Britain’s current infection and lockdown concerns still keep a lot of downside pressure on Sterling.
US Dollar (USD) Exchange Rate Benefitting from Safe Haven Demand
The US Dollar has been particularly resilient this week. Concerns about the global coronavirus outlook, as well as vaccination rollout difficulties in many major economies, have left investors seeking safer assets.
The US Dollar is a safe haven currency, and has been one of the biggest benefactors of this week’s safe haven movement.
Huge volatility in US stock markets this week have also spooked investors, further boosting safe haven demand. According to Analysts at ING:
‘We could see the greenback retain some momentum into the weekend on the back of safe-haven demand: further developments in the Robinhood story will be closely watched in this sense,’
Pound to US Dollar (GBP/USD) Exchange Rate Awaits Week of BoE and Key Data
The Pound to US Dollar exchange rate may see a more solid shift in direction over the coming week, depending on how upcoming UK and US data prints.
Key UK and US data will be published throughout the week. Final PMIs from January will be published Monday through Wednesday, and will give markets a better idea of how these key economies weathered the coronavirus pandemic over the past month.
However, the biggest news of the week will come towards the end of the week.
Thursday will see the Bank of England (BoE) hold its February policy decision. If the bank is more optimistic than expected about Britain’s coronavirus situation, it could give the Pound a pretty solid boost in demand.
The opposite is true too however. A dovish BoE could weigh heavily on the Pound’s appeal.
US Non-Farm Payroll data, due on Friday, will be the biggest data of the week for the US Dollar.
Of course, developments in the coronavirus pandemic and global sentiment will continue to influence the Pound to US Dollar (GBP/USD) exchange rate as well.