The Pound to US Dollar (GBP/USD) exchange rate has weakened since markets opened this morning as it is expected Prime Minister Boris Johnson will announce a four-week extension to current lockdown measures in the UK causing concern among investors and businesses alike.
The US Dollar firms on hopes that the latest FOMC decision later on in the week will provide fresh support for USD.
Pound US Dollar Rocked by Coronavirus and Brexit Uncertainty
The GBP/USD exchange rate fluctuated throughout much of last week’s session as UK coronavirus concerns and fresh Brexit tensions between the UK and EU, undermined confidence in the Pound.
Following a particularly sharp slump on Wednesday, the pairing was able to mount a swift comeback, following the latest US consumer price index.
While US inflation rose to a dizzying 5% in May, it was not enough to convince USD investors that it will force the Federal Reserve to diverge from its current dovish stance on monetary policy.
The GBP/USD pairing ended the week trending lower again, despite data showing the UK’s economy expanded by 27.6% year-on-year in April 2021, the largest on record.
Three Things to Watch for This Week
1. Coronavirus Developments
This evening Prime Minister Boris Johnson is to lead a press conference regarding an increase in coronavirus cases and to announce a delay in the UK’s roadmap out of lockdown, a move which could see GBP struggle.
2. UK Inflation Rate
The release of the UK’s latest inflation rate data for May could see the Pound receive some much needed support if the figure beats market expectations of 1.8%. More of the UK’s economy reopening during May as lockdown restrictions were eased.
3. Federal Reserve Interest Rate Decision
Towards the end of the week, the Federal Reserve will announce their latest interest race decision. Whilst interest rates are expected to remain at 0.25% investors will look towards any indication that the Fed are looking to begin discussing a plan for tapering and whether inflationary pressures are a cause for concern.
This week’s busy economic calendar could see volatile movement in the GBP/USD pairing. More so, coronavirus developments will continue to drive movement in the pairing as the UK braces for a lockdown extension.