GBP/USD Exchange Rate Rises on Growing Confidence in UK Economy
The Pound to US Dollar (GBP/USD) exchange rate rose by 0.2% today. The pairing is currently fluctuating around $1.39.
Sterling rose against the ‘Greenback’ following UK Chancellor Rishi Sunak’s announcement of 2021’s Budget. Mr Sunak confirmed that the furlough scheme would be extended until September as well as freezing income tax thresholds.
However, the OBR urged caution about the ‘roaring 20s’, expressing reservations about how far the Budget will go in recovering the UK’s Covid-19-ravaged economy.
Thanks to the UK’s swift coronavirus vaccine rollout programme, however, GBP investors are remaining largely optimistic about the outlook for the UK’s economy in the months ahead.
Today’s UK economic data also improved UK market sentiment.
The latest UK Services PMI, which was released this afternoon, revealed that the UK’s services sector had stabilised.
Tim Moore, the Economics Director at IHS Markit, commented:
‘UK service sector activity was relatively stable in February and so it appears that the third national lockdown has seen limited spill overs to parts of the economy beyond the scope of government mandated closures. While customer-facing businesses continued to report severe constraints on activity due to the pandemic, there were signs of growth in technology and some business services after a disappointing start to 2021.’
US Dollar (USD) Falls as Safe-Haven Demand Fades on US Stimulus Optimism
Demand for the safe-haven US Dollar weakened today as optimism continues to grow in the successful passing of US President Joe Biden’s massive $1.9 trillion stimulus plan through the Senate later this week.
Consequently, the US Dollar has suffered as risk sentiment has improved on confidence that the world’s largest economy will be able to recover in the months ahead.
In US economic news, today saw the release of the latest ISM Services PMI for February, which fell below forecasts to 55.3.
Today also saw the release of the US PMI Composite data for February which, however, rose from 58.8 to 58.5.
Chris Williamson, the Chief Business Economist at IHS, commented on the report:
‘US business activity is growing at the fastest rate for six-and-a-half years, setting the economy up for a strong start to 2021. Although consumer-facing sectors, notably hospitality, travel, and tourism, continue to be adversely affected by COVID-19 restrictions, and will be for some time to come, other parts of the economy are springing back into life. Financial services and business services are faring well, accompanying a strong manufacturing recovery. Even some hard hit consumer-facing sectors are enjoying some loosening of restrictions or adapting to life with the virus.’
GBP/USD Forecast: UK Vaccine Confidence to Drive up Sterling
US Dollar investors will be awaiting tomorrow’s US Initial Jobless Claims data.
Any signs of deterioration in US employment, however, could further drag down the ‘Greenback’.
Tomorrow will also see a speech from the US Federal Reserve’s Chairman, Jerome Powell.
Any dovishness about the outlook for the US economy, however, could drive-up demand for the safe-haven USD.
Meanwhile, GBP investors will be eyeing tomorrow’s release of February’s UK Construction PMI. If this sows some recovery in the sector, then we would see Sterling head higher.
The GBP/USD exchange rate will remain sensitive to the UK’s Covid-19 situation. But with growing confidence in the nation’s Covid-19 vaccine rollout, it’s likely we’ll see the Pound rise.