Pound US Dollar (GBP/USD) Exchange Rate Slides Today as Covid Cases Surge

GBP/USD Exchange Rate Rangebound this Afternoon as Pound Lacks Support

(Updated 15:49, 19/7/21) Both the Pound (GBP) and the US Dollar (USD) face headwinds this afternoon as covid cases continue to alarm and fresh data disappoints. Sterling is particularly challenged, as Bank of England (BoE) policymaker Jonathan Haskel gave a dovish press briefing late this morning, urging that ‘For now, tight policy is not the right policy.

Haskel offered some more positive data to counterbalance his cautious stance: observing that investment in intangibles, such as software, has remained relatively strong; that the labour market outlook is improving and that demand for goods is picking up as supply issues are resolved. However, such reassurances are unlikely to tempt investors who have been put off by worrying covid case numbers and hospitalisations.

Meanwhile, without any further impetus for movement, USD continues to hold the upper hand. Despite fears of higher inflation and rising US covid numbers, ‘Greenback’s safe-haven status is buoying the currency above most of its trading partners, including the Australian Dollar (AUD), Canadian Dollar (CAD) and New Zealand Dollar (NZD).

Original article continues below: 

GBP/USD Exchange Rate Dives on Renewed Coronavirus Fears

The Pound US Dollar (GBP/USD) exchange rate has dropped on the morning of the Britain’s ‘Freedom Day’. As masks become optional and social distancing measures are withdrawn, the number of UK covid cases swells to approximately 50,000 daily.

At the time of writing, the Pound (GBP) trades at $1.3724, 0.3% down from today’s opening levels.

Pound (GBP) Faces Headwinds as UK Reopens Society Despite Covid Concerns

The Pound dropped by half a cent this morning to its lowest level against the US Dollar (USD) since April. Sterling’s descent is accompanied by public unease over restriction easing- scientists have called ‘Freedom Day’ an ‘unethical experiment’ which could lead to new covid variants emerging.

According to Reuters’ Natalie Thomas,

‘Boris Johnson’s plan to reopen the economy is seen at best as a high-risk gamble… [as] the surge of the Delta variant of COVID-19 has eroded faith in global economic recovery.’

Government advisors in New Zealand, Israel and Italy have expressed concern over the UK’s social unlocking, as university professors and medical experts come together to urge caution. Dr William Haseltine, a former Harvard Medical School Researcher, specifically worries that ‘some of the worst impulses in many of our states will follow the UK example.’

Given widespread criticism of ‘Freedom Day’ at home and abroad, officials are facing concerns over the sustainability of new easing measures. If case numbers and hospitalisations continue to rise at the rapid rate currently experienced, lockdown restrictions may have to be reintroduced.

US Dollar (USD) Trades High on Risk-Off Mood amidst Swelling Case Numbers, Rising US Inflation

The US Dollar (USD) is benefitting this morning from its safe-haven status, as global concerns over the rapid spread of coronavirus drive down trading sentiment.

Last week saw US Retail figures exceed expectations, as well as a drop in 10-Year Treasury yields below 1.3% – but the market mood remains risk-averse as the University of Michigan’s figures show shoppers are less confident and expect higher inflation.

Fears of higher inflation have been exacerbated by alarming CPI figures: the US CPI Index hit a 13-year high last month, grating against investors’ nerves. Economists at the Bank of America have downgraded their forecasts for US economic growth to 6.5% from 7% – but maintain their 5.5% forecast for next year.

The persistence of risk-off sentiment continues to elevate the dollar and will likely sustain ‘Greenback’ for a time to come.

GBP/USD Forecast: Risk-Off Mood to Linger as Eyes are On ‘Freedom Day’ Aftermath

Looking forwards, the US Dollar is expected to extend its gains as covid concerns are amplified. USD will find support in its risk-off appeal as significant UK data remains sparse in the run up to Friday’s retail figures.

The US Dollar may also avoid much more pressure on fears of continuing high inflation levels- analysts at JP Morgan see inflation rates settling at 2-3% over the long-term and agree with the Federal Reserve that the current inflation surge is likely transitory.

Travel restrictions for UK holidaymakers returning from France are likely to dent Sterling sentiment as from today, Brits who have had two covid jabs no longer need to isolate when returning from other amber-list countries. London blames the France exception on the Beta variant.

Olivia Evershed

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