GBP/USD Exchange Rate Edges Higher Following UK Budget Announcement
The Pound to US Dollar exchange rate rose by 0.5% today, with the pairing currently fluctuating around $1.39.
Sterling rose today following a broadly positive reaction to UK Chancellor Rishi Sunak’s 2021 Budget announcement yesterday. Mr Sunak repeated his pledge to do ‘whatever it takes’ to aid the nation’s economic recovery from Covid-19.
Sunak also expressed confidence in the outlook for the economy, saying:
‘The OBR now expect the economy to return to its pre-Covid level by the middle of next year – six months earlier than they previously thought.
‘The OBR forecast that our economy will grow this year by 4%, by 7.3% in 2022, then 1.7%, 1.6% and 1.7% in the last three years of the forecast.’
Today also saw more encouraging UK data in the form of the latest UK Construction PMI. The figure beat forecasts and emerged out of contraction territory at 53.3.
Tim Moore, the Economics Director at IHS, commented on the report:
‘Construction work regained its position as the fastest growing major category of UK private sector output in February. The rebound was supported by the largest rise in commercial development activity since last September as the successful vaccine rollout spurred contract awards on projects that had been delayed at an earlier stage of the pandemic.’
US Dollar (USD) Sinks as Risk Sentiment Improves
The safe-haven US Dollar (USD) continued to be undermined by improving risk sentiment. US President Joe Biden’s proposed $1.9 trillion stimulus plan is now expected to clear the Senate and help recover the US’ Covid-19-ravaged economy.
As a result, demand for the safe-haven ‘Greenback’ is being compromised by growing confidence in the global economy’s ability to recover later this year.
In US economic news, today saw the release of the latest Nonfarm Productivity data. This beat forecasts but remained negative at -4.2%.
Consequently, USD investors are concerned about the drop in productivity, which is at its lowest rate since the second quarter of 1981.
Today also saw the release of the US Initial Jobless Claims report for February. The figure revealed an increase in US unemployment.
Ian Shepherdson, chief economist with Pantheon Macroeconomics, commented on the data:
‘Two good weeks in this volatile series don’t prove anything, but whatever happens next week, we expect the trend to fall sharply over the next few months, provided the new Covid variants don’t trigger a spring wave in cases and, more importantly, hospitalizations.’
GBP/USD Forecast: US Nonfarm Payrolls Data in Focus
US Dollar investors will be awaiting tomorrow’s influential US Nonfarm Payrolls data for February.
Any improvement in the payrolls data could drive-up the ‘Greenback’ as the outlook for the world’s largest economy improves.
Tomorrow will also see the release of February’s US Unemployment Rate. If this continues to rise, however, then we could see the USD begin to suffer.
The GBP/USD exchange rate will continue to be driven by UK economic speculation.
As the UK’s economy is expected to cautiously reopen in the next few months, Sterling could head higher as optimism continues to grow in the nation’s recovery.