Pound US Dollar (GBP/USD) Exchange Rate Edges Lower for Fifth Consecutive Session amidst Covid and Brexit Woes

GBP/USD Exchange Rate Ticks Lower, Pound Muted by Ongoing Covid Worries

The Pound US Dollar (GBP/USD) exchange rate dipped slightly lower this morning as Covid jitters and an impasse over the Northern Ireland Protocol weigh on Sterling. Sustained USD strength also inflicts downside pressure on GBP.

At the time of writing, the Pound trades at $1.3612, just shy of a six-month low.

Pound (GBP) Inches Marginally Lower as Covid Cases Climb, Brexit Tensions Persist

The Pound struggles to capitalise on yesterday’s bounce this morning, trading on the defensive against the US Dollar. Today marks the seventh day of a negative move in the GBP/USD exchange rate in the previous eight.

Increased reopening doubts weigh on GBP trading sentiment, as coronavirus cases rise. Public figures have criticised the government for basing unlocking measures on popular demand rather than scientific advice. 

Nightclub owner Peter Marks states:

‘What we’ve got here is a government, in particular a prime minister, who is driven more by public opinion and opinion polls than I think is healthy.’

In other news, the impasse over the Northern Ireland Protocol of the Brexit deal continues to sour ties between the UK and European Union.

The UK’s chief Brexit negotiator, David Frost, said on Monday that the protocol is not sustainable in its current form, and is set to unveil the government’s post-Brexit proposals for Northern Ireland today.

Ahead of the proposal, Lord Frost remarked that ‘aligning with or adopting the EU’s agri-food legislation is not going to be a solution’ as ‘the threat of increased red tape … would deter many firms in from continuing to fulfil orders in Northern Ireland.’ If Frost is overt with EU criticism, the Union may retaliate, stoking tensions and damaging the trading appeal of the Pound.

US Dollar (USD) Retains Strength on Safe-Haven Status, Treasury Bond Yields

The US Dollar continues to hold steady against the Pound as a risk-off trading mood lends support to the ‘Greenback’. USD represents a safe-haven investment as traders remain worried about the potential economic fallout from the spread of the highly contagious Delta variant.

10-Year US Treasury yields rebounded back above 1.2% yesterday, as investor sentiment lent renewed support to the US Dollar. Earlier in the day, the 10-year yield had dropped to a five-month low; the sudden clawback suggesting that investors are eying a later start to the Federal Reserve’s tightening process.

Overall, the outlook for the US economy is positive, as economists expect the economy to continue growing solidly over the coming year, fuelled by job gains, pent-up savings and continued fiscal support. In the longer term, they foresee the expansion gradually cooling down to a more stable post-pandemic pace.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: Pound Set to Fall in Coming Weeks?

According to strategists at UOB Group, the Pound is unlikely to weaken further today. Analysts predict that the GBP/USD exchange rate is likely to consolidate and trade between $1.3585 and $1.3670.

The next few weeks could see GBP/USD drop further if UK data disappoints. Tomorrow will see the publication of business optimism figures, while Friday’s YoY retail sales and PMI data are expected to print slightly lower.

Meanwhile, USD exchange rates is expected to extend its rally. Tomorrow’s US jobless claims, alongside Friday’s PMIs, could bolster the US Dollar further; while anything printing below expectations may limit ‘Greenback’s gains.