Pound US Dollar (GBP/USD) Exchange Rate Nosedives to Five-Month Low on Covid and Brexit Concerns

GBP/USD Exchange Rate Sees Marginal Uptick as US Data Disappoints

(Updated 18:21, 20/07/2021) The Pound (GBP) has made limited headway this afternoon as US housing data misses expectations. Building permits fell by 5.1% in the month of June, as opposed to rising by the 0.5% expected.

Permits issued YoY reached a seasonally adjusted annual rate of 1.598 million, missing market expectations of 1.7 million. This marks an eight-month low, reflecting the price of building materials in addition to labour and land.

Although lumber prices are coming down, the price of steel, concrete and lighting remains high. A rise in covid infections amongst unvaccinated Americans also poses a risk to the housing market outlook, in part due to a shortage of skilled workers.

Despite the brief downturn in USD, the Pound continues to sit at a seven-month low against the US Dollar, demonstrating ‘Greenback’s safe-haven appeal.

Original article continues below:

GBP/USD Exchange Rate Sinks as Coronavirus and Brexit Worries Weigh on the Pound

The Pound (GBP) remains on the defensive this morning as unease over rising covid cases continues to put pressure on Sterling. The US Dollar (USD) is the favoured currency of the two, as its safe-haven status recommends the currency in times of turbulence.

At the time of writing, the Pound trades at $1.3636, virtually unchanged from today’s opening levels and just shy of a five-month low.

Pound (GBP) Stuck in a Low Range as UK News Strikes Downbeat Tone

The Pound continues to suffer today from low trading sentiment as the covid Delta variant continues to spread and Brexit concerns remain unresolved. The Bank of England’s (BoE) dovishness adds to Sterling’s weakness.

Despite hospitalisations and deaths being less of a threat than previously, with more than half the British population now fully vaccinated, the highly contagious nature of the Delta variant presents a challenge as new cases rise to almost 40,000 today.

The number of people being told to self-isolate has risen to hundreds-of-thousands on a weekly basis, threatening the UKs economic recovery. With more people having to stay home, businesses are likely to be faced with a slump in demand.

Brexit continues to cause headwinds for the UK as the infamous Northern Ireland Protocol resists an easy resolution. Meanwhile, BoE policymaker Jonathan Haskel struck a dovish tone at yesterday’s speech, arguing that for the time being, ‘tight policy is not the right policy’; his words were supported later in the session by new BoE rate-setter Catherine Mann, who iterated that ‘the global economic recovery [is] more fragile than headline growth rates [suggest].’

US Dollar (USD) Benefits from Risk-Averse Trading Sentiment

The US Dollar is continuing to accelerate this morning, as the prevailing risk-off mood, driven by the resurgence in global coronavirus cases bolsters demand for the safe-haven ‘Greenback’.

Wavering sentiment towards monetary policy is also rife. Reuters reports a discrepancy between banks’ reassurances and prevalent market sentiment: ANZ analysts observe that ‘sentiment appears to have shifted… to a persuasion that growth and earnings expectations may be overdone.’

A lack of confidence in central banks’ judgement exacerbates the uncertainty surrounding coronavirus and strengthens the US Dollar further. Bloomberg’s Mervyn King notes growing investor concern:

‘The lack of concern that has characterised central bank statements – at least until the last few days – fuels the perception that policymakers are stuck with their ‘lower for longer’ mindset… if policy falls behind the curve, the cost of tackling a rise in inflation will be higher than it would be under a forward-looking, pre-emptive approach.’

GBP/USD Forecast: Sterling Unlikely to Recoup Gains in Near Future as Trading Remains Bearish

Looking ahead, the Pound US Dollar exchange rate looks set to slump further as Britain forecasts further doom with covid spreading and travel to the UK from abroad blacklisted.

With Britain’s daily covid caseload already in the tens-of-thousands, and set to rise further in the coming months, following the lifting of nearly all restrictions in England, the upside potential of the Pound looks limited.

An uptick in retail sales or services and manufacturing PMIs could boost GBP on Friday’s session. In the meantime, US jobless claims may lend further support to the US Dollar, alongside American PMIs. Until then, not much is expected to change, except possible further decline for the Pound, as economists note: ‘A currency pair that cannot recover is set to tumble.’