GBP/USD Exchange Rate Recovers Most Weekly Losses on Bank of England (BoE) News
The Pound (GBP) saw a surge in demand yesterday, but the Pound Sterling to US Dollar (GBP/USD) exchange rate is struggling to advance higher. This is because the US Dollar (USD) has also been one of the best performing major currencies this week.
After opening this week at the interbank level of 1.37, GBP/USD briefly jumped higher and touched on its best levels in two and a half years.
However, since then GBP/USD has spent the week trending with a downside bias. GBP/USD even touched on a fortnight low of 1.35 yesterday, before rebounding on Bank of England (BoE) news.
At the time of writing on Friday, GBP/USD has recovered most of its weekly losses and trends close below the week’s opening levels.
Pound (GBP) Exchange Rates Jump on Bank of England’s (BoE) Negative Rates Stance
Thursday saw the Bank of England (BoE) hold its February policy decision. The bank left rates frozen as expected, and lowered its forecasts for Q1 2021 growth.
However, the biggest news for investors was the bank’s comments on the potential of negative interest rates.
The BoE told banks to prepare for the possibility of negative rates within six months, but clarified that it was not sending a signal on negative rates being remotely imminent.
Instead, the bank indicated it was hesitant to implement negative rates, and analysts took the bank’s stance to mean that negative rates are far off and may not happen at all.
US Dollar (USD) Exchange Rates Remain Strong Ahead of Non-Farm Payrolls Report
The US Dollar has been one of the strongest major currencies this week, and has surged against most major rivals. The US currency is on track to see its most bullish week in months.
After months of short bets weakening the US Dollar, the currency is seeing a surge in demand as markets rethink their stances on the resilient US economic outlook.
While the US Dollar is often correlated to safe haven demand, the currency may have fallen too far given strong US economic and coronavirus vaccine outlooks. This is keeping the US Dollar broadly appealing this week.
According to Strategists at ING:
‘And certainly, the US vaccination roll-out looks far more impressive than that in Europe’
Pound to US Dollar (GBP/USD) Exchange Rate May Struggle if US NFP Report Impresses
The Pound to US Dollar exchange rate is attempting to recover this morning, but the US Dollar could still be in for more gains before markets close for the week.
Amid stronger than expected US employment data from ADP, and lower jobless claims, markets are highly anticipating today’s US Non-Farm Payrolls report.
Non-Farm Payrolls are a key indicator of US economic health. If the data beats forecasts, it could further boost the already strong US Dollar outlook. Strategists at ING said:
‘Heavy short Dollar positioning probably plays a big role here and would again seem vulnerable were any part of today’s non-farm payrolls jobs data to be greeted positively.’
The Pound doesn’t have much more upside potential unless there are any positive surprises in the domestic coronavirus outlook. For now, Pound investors will await next Friday’s UK growth rate results.
Of course, the Pound to US Dollar (GBP/USD) exchange rate has the potential to end this week higher instead if US NFP data is disappointing enough to knock the US Dollar’s rally short.