Pound US Dollar (GBP/USD) Exchange Rate Falls as UK Inflation Falls to Three-Month Low in February

GBP/USD Exchange Rate Sinks Over Fears that the EU’s Third Covid Wave Could Affect the UK

The Pound US Dollar (GBP/USD) exchange rate fell by -0.3% today after the UK inflation gauge for February fell to a three-month low of 0.4% due to retailers slashing prices. The pairing is currently trading around $1.36.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, commented on the data:

‘The sharp fall in CPI inflation in February reflected clothing retailers slashing prices, because the lockdown has left them with excess stock. Prices will snap back, as they have after previous lockdowns.’

The Pound (GBP) has struggled this week, however, as fears over the European Union’s (EU) third-wave of coronavirus infections are expected to reach the UK.

Daily cases of Covid-19 in the UK have essentially stabilised, with the current number reading 5,379, up by 85 compared to last week.

However, the number of those admitted to hospital has fallen by -1,838 versus last week.

Today will also see the release of the preliminary Markit Services PMI for March.

Any improvement in the UK’s largest sector, however, could see the Pound US Dollar exchange rate begin to hedge higher.  

US Dollar (USD) Edges Higher as Risk-Off Market Mood Boosts Demand for Safe-Haven Currencies

The US Dollar (USD) has benefited from its safe-haven status this week, with growing concerns over in Europe about increasing cases of Covid-19.

As a result, global risk sentiment has faltered, owing to fears that the EU, one of the largest economies in the world, could struggle through a third-wave of the coronavirus.

This week also saw US-China tensions escalate after several Western nations – including the EU and UK – imposed sanctions on Chinese officials over human rights abuses in Xinjiang.

US Dollar traders will be awaiting today’s publication of the latest US Durable Goods Orders for February.

Any improvement in the outlook for the American economy – the largest in the world – could improve risk sentiment and limit the appeal of the safe-haven ‘Greenback’.

Today will also see a speech from Jerome Powell, the Chairman of the Federal Reserve.

If Mr Powell is notably upbeat in his outlook for the US economy, then we could see the US Dollar Pound exchange rate begin to fall as global risk sentiment improves.

Pound US Dollar (GBP/USD) Outlook: Could UK Economic Optimism Boost Sterling This Week?

US Dollar (USD) traders will be awaiting tomorrow’s publication of the annualised US GDP figure for the final quarter of 2020.

Any improvement in the outlook for the US economy would improve global risk sentiment and limit the appeal of the safe-haven ‘Greenback’.

Tomorrow will also see the release of the latest US Initial Jobless Claims report for March.

If joblessness continues to rise in the UK, however, then the USD/GBP exchange rate could begin to struggle.

Pound (GBP) traders will be awaiting tomorrow’s speech from the Bank of England’s (BoE) Governor, Andrew Bailey.

The Pound US Dollar (GBP/USD) exchange rate could edge higher this week, however, if the outlook for the UK economy continues to improve as Covid-19 hospitalisations fall throughout the UK.

David Moore

Contact David Moore