Pound US Dollar (GBP/USD) Exchange Rate Dips Ahead of US Fed Testimony

GBP/USD Exchange Rate Falls as Optimism Grows in US Economic Outlook

The Pound US Dollar (GBP/USD) exchange rate dipped by 0.2% following last week’s US Federal Reserve’s hawkish monetary policy update, which has left markets unsure how to react and buoying demand for the safe-haven ‘Greenback’. The pairing is currently trading around $1.38.

US Dollar (USD) traders are closely monitoring US Fed policymakers this week, with particular note being taken of any shift in the bank’s policy intentions going forward.

Yesterday saw key Fed policymakers say that the US economy’s reopening was helping the nation’s economy to recover. This could effect monetary policy due to upside inflation risks.

Today will see Fed Chairman Jerome Powell testify before the Congressional committee, any comments about the ‘tapering’ of asset purchases could further send markets into a frenzy.

As a result, the bullish attitude from the Fed could further boost demand for the US Dollar safe-haven as the outlook for other large economies still remains largely uncertain.

Mark Vassella, chief executive of BlueScope Steel Ltd, commented:

‘We’re incredibly bullish about the U.S. economy, even more so now.’

Pound (GBP) Exchange Rate Dips Despite Strong UK Factory Activity

The Pound (GBP) struggled against the stronger ‘Greenback’ today despite UK factory activity soaring at a record pace.

Manufacturing activity rose at its fastest growth since the 1970s, buoying confidence in the outlook for the UK economy.

Today also saw Health Secretary Matt Hancock say that the data looks good for lifting lockdown measures on 19 July.

Mr Hancock told Today on BBC Radio 4:

‘We are on track for the opening on July 19 and we will watch vigilantly, we will look at the data in particular in the start of next week’.

Consequently, GBP investors have become more optimistic about the outlook for the UK economy, after the lifting of lockdown restrictions were delayed for the previous date of 21 June.

Prime Minister Boris Johnson also said it was ‘looking good’ for lifting lockdown restrictions next month.

Estimates also range from 85.4% of adults in Northern Ireland and 86.6% in England already having Covid-19 antibodies, according to latest figures from the Office for National Statistics (ONS).

GBP/USD Exchange Rate Forecast: Could Strong US Data Weaken Demand for the Safe-Haven ‘Greenback’?

Pound (GBP) traders will monitor tomorrow’s release of the flash services and manufacturing PMI gauge tomorrow.

If either sector shows strong signs of growth this month, then the Pound US Dollar exchange rate could begin to claw back some of its losses.

UK Covid-19 news will also be on the agenda. So, if cases of the virus continue to ease off, we could see Sterling benefit from renewed optimism in the economic outlook for the nation.

In US economic news, tomorrow will see the release of the US PMI composite data for this month.

Again, if the outlook for the US economy continues to improve – with comments from Federal Reserve policymakers reinforcing this belief – then demand for the safe-haven ‘Greenback would diminish.

David Moore

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