Pound US Dollar Dips as UK Doctors Warn of ‘Unacceptable’ Level of Covid Cases

Pound US Dollar (GBP/USD) Dips amid Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange rate is edging lower again this morning after recovering Wednesday’s losses yesterday evening.

Following the lower-than-expected UK inflation rate reading of 3.1% yesterday, Sterling tumbled but later bounced back and corrected its position as investors reacted to the data and repriced expectations for when the Bank of England (BoE) may raise interest rates.

GBP/USD is hovering around $1.38 so far this morning, under pressure from concerns over rising Covid-19 cases in the UK and the US Dollar attempting to rebound as market mood turns cautious.

Pound (GBP) Slips as Rising UK Covid Cases Cause Concern

After recovering Wednesday’s UK inflation rate driven losses overnight, the Pound (GBP) is struggling this morning as concerns grow over rising Covid-19 cases in the UK.

As daily UK infections have risen to over 40,000 for eight days in a row, calls are growing for the UK government to trigger their Plan B that would reintroduce Covid restrictions.

The British Medical Association has described the number of Covid cases as ‘unacceptable’ and the government of being ‘wilfully negligent’.

Speaking at a Downing Street Press conference, Health Secretary Sajid Javid said the government would not use it Plan B measures yet.

However, Javid warned that cases could rise to 100,000 a day and that restrictions could return if the NHS comes under ‘unsustainable pressure’.

He said:

“If not enough people get their booster jabs, if not enough of those people that were eligible for the original offer… if they don’t come forward, if people don’t wear masks when they really should in a really crowded place with lots of people that they don’t normally hang out with, if they’re not washing their hands and stuff, it’s going to hit us all.

“And it would of course make it more likely we’re going to have more restrictions.”

Meanwhile, the Pound seems to have shaken off yesterday’s unexpected slowing UK inflation data. With inflation forecasts still pointing to a rise over 4% by early next year, expectations for the BoE to raise interest rates before the end of the year or in early 2022 remain largely unchanged.

US Dollar (USD) Buoyed by Risk-Off Trade

The US Dollar (USD) is strengthening on Thursday after market sentiment soured to increase safe-haven demand for the currency, and US Treasury yields rise to support USD.

Concerns over Chinese property giant Evergrande triggered jitters in equity markets after attempts to sell assets in the company collapsed.

Following Evergrande failing to sell 50.1% of its property services, shares in the parent company fell almost 12% and fears grow of a technical default as soon as tomorrow, with the firm unable to meet its financial obligations.

With debts of $305bn, the news sent shockwaves through global equity markets.

Pound US Dollar Forecast: UK and US PMIs in Focus

The Pound may be limited through the rest of the week after recovering from falling in the aftermath of the UK inflation release.

Despite an imminent rate hike happening in November appearing less likely, investors have still priced in expectations for the BoE to raise interest rates by the end of the year or early next.

UK PMI data on Friday may stoke volatility in GBP/USD as forecasts point to UK private sector activity slowing in October.

Manufacturing growth looks set to slow from a 57.1 reading to 55.8, and services 55.4 down to 54.5, which would be a seven-month low and likely cause concerns over UK economic growth.

However, UK September retail sales could offer support to GBP, with a 0.5% return to growth expected following August’s -0.9% contraction.

Meanwhile, US PMIs are expected to show a slight slowdown in expansion and initial jobless claims a slight rise last week, although market risk appetite and US Treasury yield movement will likely be the key drivers of USD towards the end of the week.

Andrew Roberts

Contact Andrew Roberts