Pound US Dollar (GBP/USD) Exchange Rate Boosted by Covid-19 Forecasts
The Pound US Dollar (GBP/USD) exchange rate is pushing higher today after starting the week attempting to recover some of Friday’s losses.
Optimism that coronavirus cases may decline going into winter based on the latest data modelling for the UK government has boosted GBP/USD to trade at 1.3821 at the time of writing.
However, uncertainty over UK-EU talks on the Northern Ireland protocol are limiting GBP/USD gains, although there appears cautious optimism that the two sides can reach an agreement.
Pound (GBP) Buoyed by Covid-19 Optimism
The Pound (GBP) strengthened on Tuesday morning, amid an upbeat mood and expectations for an early interest rate hike from the Bank of England (BoE).
Market sentiment has lifted as figures showed more than half of over-50s in England have had a booster jab and modelling for the UK government that suggests Covid-19 cases in the UK may decline going into winter.
Following calls from the British Medical Association (BMA) for the government to reintroduce some restrictions, concerns had grown that cases could become uncontrollable and Plan B restrictions could derail the UK’s economic recovery.
However, the latest forecasts from the London School of Hygiene and Tropical Medicine (LSHTM) suggest the spike in infections may be temporary and may quickly fall in the coming months.
Meanwhile, early optimism over talks between the UK and EU over checks at the Northern Ireland border with the rest of the UK has given way to a more cautious mood.
Fundamental differences between the two sides appear to remain after the UK’s Brexit negotiator Lord Frost said “gaps between them remain significant”.
He commented on the EU’s proposals:
“The problem with them is that they don’t go far enough.
“I’m not sure they would quite deliver the kind of ambitious freeing-up of trade between Great Britain and Northern Ireland that we want to see, but what we’re trying to test is whether they could find the basis to go further than what they have put on the table.”
US Dollar (USD) Slips as US-China Talks ‘Constructive’
The US Dollar (USD) is slipping so far today as a risk-on mood weighs on demand for the safe-haven currency.
In the absence of notable US data at the start of the week, US-China talks, risk appetite and US Treasury yields have driven the ‘Greenback’s movement.
The market mood has improved as economic talks between the US and China have been ‘constructive’ and they plan to ‘up economic coordination’, with the Evergrande crisis and US Treasury yields on the agenda.
The upbeat market mood has offset US Dollar support from Treasury yields, which bolstered USD yesterday as anticipation grows ahead of the Federal Reserve’s November policy meeting and expectations the central bank will begin tapering its bond-buying programme.
Pound US Dollar Forecast: UK Autumn Budget in Focus
For GBP investors, the UK autumn budget will be the focus tomorrow.
Insight into UK growth forecasts and spending plans that may support the country’s economic recovery will likely drive movement in the Pound.
Ongoing coronavirus developments will influence Sterling movement. If indications point to Covid-19 infections stabilising or declining, and the need for restrictions appears less likely, the Pound could extend its gains.
Meanwhile, September’s durable goods orders data may dent the US Dollar as forecasts point to a -1.1% contraction, down from 1.8% growth in August.
Further positive or negative developments in the Evergrande crisis may fuel shifts in market risk appetite, which in turn will likely affect safe-haven demand for USD.