Pound US Dollar Exchange Rate Hits Three-Year High on UK Economic Recovery Hopes

GBP/EUR – Bets on Stronger UK Covid-19 Recovery Boosts Pound

Optimism over the UK economy’s expected recovery from the current Covid-19 pandemic helped to keep the Pound on a positive footing against its rivals over the course of the last week.

Even though December’s unemployment rate rose from 5% to 5.1% as forecast, with suggestions that the rate could hit 6.5% in the course of 2021, this was not enough to dent GBP exchange rates.

While the UK labour market remains on course to weaken further in the first quarter, thanks to the ongoing national lockdown, this prospect failed to discourage demand for the Pound.

GBP investors will likely continue to monitor the UK’s falling coronavirus case numbers as declining infection statistics remain key to the UK government’s lockdown exit strategy.

GBP/USD – Pairing Hits Three-Year High in spite of Weak UK Data

With the Pound on a bullish trend, the GBP/USD exchange rate rose to a fresh three-year high, hitting its highest level since April 2018.

Confidence in the UK’s rollout of Covid-19 vaccines and the possibility of a second quarter economic rebound helped to overshadow the discouraging nature of January’s -8.2% monthly slump in retail sales.

Even with the UK economy demonstrating signs of weakness at the start of the year, with February’s services PMI also remaining trapped in contraction territory, the Pound held onto a stronger footing across the board.

However, as the impact of the government’s lockdown exit plan announcement starts to fade, this could see GBP exchange rates become vulnerable to some degree of market correction.

USD/GBP – US Dollar Weighed Down by Latest Signs of Fed Dovishness

The dovish nature of the latest comments from Federal Reserve Chair Jerome Powell put the US Dollar under fresh pressure.

As Powell indicated that monetary policy could remain loose for the foreseeable future, with unemployment and inflation unlikely to return to target any time soon, the mood towards the US Dollar soured.

However, USD exchange rates may find a rallying point on Thursday as forecasts point towards a solid monthly uptick in January’s durable goods orders reading.

If goods orders can surge 1.1% on the month as anticipated, this could help to encourage greater confidence in the underlying health of the US economy, limiting the weakness of the US Dollar.

EUR/USD – Eurozone Services PMI Contraction Continues to Weigh on Euro

The Euro remains limited by ongoing concerns over the EU’s vaccine rollout, as well as February’s Eurozone services PMIs delivering evidence of another month of sector contraction.

While the manufacturing sector continued to perform well this month, the continuing drag of the service sector cast doubt over the possibility of economic growth recovering in the near future.

However, any improvement in the latest set of Eurozone economic sentiment surveys may encourage the single currency to return to a stronger footing.

Signs of strengthening business confidence could help to offset lingering worries over the prospect of a double-dip recession, with investors betting on the chance of a second quarter recovery.