GBP/USD Exchange Rate Low as Brexit and Coronavirus Worries Dim GBP Sentiment
The Pound (GBP) is extending yesterday’s lows against the US Dollar (USD) as it faces pressure from rising Covid cases and possible EU tensions.
Meanwhile, the US Dollar has been trading flat against several peers this morning despite positive unemployment data yesterday, as mixed clues on the Federal Reserve’s next policy move sap investor’s confidence.
At the time of writing, GBP/USD is trading at $1.3803, caught between bearish sentiment on either side.
Pound (GBP) Pressured by Rising Infections and EU Tension
The Pound (GBP) has fallen against the majority of its peers today as trading sentiment hangs low on fresh Brexit and Covid concerns. EU citizens in the UK have now missed the deadline to apply to stay, which could renew tensions between the UK and Brussels.
Some 569,100 cases were pending in July as European citizens waited to hear whether they were eligible to remain in the UK. Such high numbers have caused a backlog as caseworkers struggle to process applications.
While EU citizens await their verdict, immigration lawyer Bhavneeta Limbachia argues: ‘This bottleneck in the system is failing EU nationals, especially when employment has had to be temporarily suspended.’
UK tensions over the settlement scheme are exacerbated by once-more rising coronavirus infections: from 26,201 reported cases on 5 August, statisticians recorded 28,458 yesterday. Public Health England observed that case rates rose among all age groups except 10 to 19-year-olds.
The risk-off attitude created by both of these developments is further encouraged by the fact of yesterday’s UK data, exerting downside pressure upon the Pound.
While GDP growth of 4.8% seemed impressive initially, analysts were quick to suggest that a large part of the rise was a simple function of the reopenings. Moreover, UK industrial production contracted month-on-month, business investment fell short of predictions, and the UK’s trade deficit widened by more than expected.
US Dollar (USD) Muted Ahead of Import/Export Data, Consumer Confidence
The US Dollar is struggling to make headway this morning as trading sentiment is mixed ahead of this afternoon’s data.
On the one hand, risk-off trading lends support to the ‘Greenback’. Ongoing concerns over the spread of the Delta Covid variant and China’s widening regulatory curbs on the country’s technology sector are encouraging a bearish mood amongst investors, who flee to safe-haven currencies in times like these.
On the other hand, America’s CPI print midweek was slightly weaker than expected, supporting the Fed’s claims that higher inflation is ‘transitory’. If the US economy has indeed seen inflation peak, tapering pressures will ease off, potentially denting investor sentiment.
The Fed’s Raphael Bostic announced on Monday that ‘substantial further progress’ on inflation had effectively been met’; his hawkish stance was countered however, by policymaker Charles Evans, who asserted that more labour data was needed before making any changes to monetary policy, alongside more certainty that the pace of price increases will remain above the Fed’s 2% target.
Improving jobless claims and stubbornly high PPI data have limited USD downside, but further data this afternoon is likely to drive additional movement.
GBP/USD Exchange Rate Forecast: US Dollar to Rally on Afternoon Data?
Looking ahead, US import/export data is likely to drive movement this afternoon in the GBP/USD exchange rate, along with consumer confidence figures.
Both imports and exports are expected to have decreased in price in July, while consumer confidence looks to stay the same. If confidence prints higher than expected, the US Dollar could receive an additional boost.
Meanwhile, any developments on the Brexit or coronavirus situation are likely to influence the GBP/USD exchange rate from the Pound side.