Pound US Dollar Exchange Rate Gives Up Yesterday’s Advance Attempt
Despite continued optimism in Britain’s coronavirus recovery outlook, the Pound US Dollar (GBP/USD) exchange rate is struggling to recover this week. The US Dollar (USD) remains broadly appealing as markets avoid taking risks.
After opening last week at the interbank level of 1.38, GBP/USD spent the week trending lower as USD surged. In the middle of the week, GBP/USD touched on a monthly low of 1.36.
GBP/USD ultimately recovered some ground and closed the week in the region of 1.37. However, a brief jump back to 1.38 yesterday was short-lived. GBP/USD continues to trend below the week’s opening levels in the interbank region of 1.37 at the time of writing.
Key UK growth data could drive the Pound (GBP) tomorrow, while US Dollar investors await Friday’s US Non-Farm Payroll report.
Pound (GBP) Exchange Rates Lack Drive despite Continued Reopening
Britain’s economy continued to gradually reopen, matching the government’s projected plans so far. This week, the government is allowing outdoor socialising between groups.
The news was promising to Pound investors, who remain optimistic that the UK economy will be one of the first major economies to recover from the coronavirus pandemic.
According to Yohay Elam, Analyst at FXStreet:
‘Even if the UK’s immunization campaign somewhat slows down, it has reached nearly 50% of the population with at least one dose and the results are clear – cases and hospitalizations are falling. Moreover, London recorded no COVID-19 deaths on Monday – the first such feat in 2021.’
The news wasn’t hugely surprising to investors. While Sterling remains appealing, it is struggling to mount fresh advances.
US Dollar (USD) Exchange Rates Continue to Benefit from Market Sentiment
The US Dollar is a safe haven currency, a currency which is often more appealing in times of global market uncertainty and aversion to risk.
Since global coronavirus ‘third wave’ fears have been rising recently, investors have been less hesitant to take risks. This combined with a fairly strong economic outlook in the US has left the US Dollar appealing in recent weeks.
The US Dollar continues to benefit from this risk-aversion this week so far. Optimism that the US economy will continue to improve are supporting USD as well.
According to FXStreet’s Yohay Elam:
‘President Joe Biden is set to unveil his infrastructure spending plan on Wednesday and he may refrain from introducing new taxes in the first phase. That implies higher debt, more bond issuance, and therefore rising returns on Uncle Sam’s IOUs.
The White House grand plans – which include huge wind farms and other green initiatives – may push inflation higher. If the Federal Reserve is forced to hike borrowing costs, that would also support the greenback.’
Pound US Dollar (GBP/USD) Exchange Rate Awaits Key Data
The Pound to US Dollar exchange rate is struggling to advance today, but the pair could advance again if upcoming UK data impresses or US data disappoints.
Wednesday’s session will see the publication of Britain’s final Q4 2020 growth rate report. If Britain’s growth was more resilient than expected, hopes for momentum in the UK economic recovery would likely rise.
As optimism around Britain’s recovery hopes has been largely priced in for now, strong UK growth data tomorrow is the best chance the Pound has at strengthening again.
The US Dollar, on the other hand, is likely to remain appealing unless there is another shift in market sentiment, or upcoming US data disappoints.
Friday’s US Non-Farm Payroll report could be highly influential to the US outlook if it surprises investors.
This, or a recovery in risk-appetite, are the most likely to cause a shift in Pound US Dollar (GBP/USD) exchange rate movement this week.