Pound US Dollar (GBP/USD) Exchange Rate Muted as New Covid-19 Variant Prompts Fear in Markets

(Updated 16:45 26/11/21)

The GBP/USD Exchange Rate has traded within a narrow range over the course of today’s session, as market fears regading the newly discovered COVID-19 varient contniued to place pressure on both currencies.

At time of writing, the GBP/USD exchange rate is at around $1.3312.

Pound US Dollar (GBP/USD) Exchange Rate Subdued as New Covid Variant Shocks Markets

The Pound US Dollar (GBP/USD) Exchange Rate dipped this morning as fears over a new COVID-19 variant fuelled movements across the markets today. A slower US Dollar (USD), perhaps caused by lower treasury yields and the closing of the markets yesterday, as helped the rate maintain a gradual upward momentum.

At time of writing the GBP/USD exchange rate is around $1.3317.

Pound (GBP) Nervous as COVID Variant Emerges and Bailey Limits Forward Guidance

The Pound (GBP) has traded within a narrow range today after an initial dip following the emergence of a new COVID-19 variant today. UK Health Secretary Sajid Javid’s statement at 11am on the matter could prompt fresh movement in the currency.

Investors may also be holding off on placing significant bets on Sterling today after comments made by Bank of England (BoE) Governor Andrew Bailey yesterday. In a speech to the Cambridge Union, Bailey reiterated his views that forward guidance from central banks was ‘hazardous’ in more uncertain times and went on to say that he felt the boundary between market commentary and guidance was ‘murky’.

The Pound may also see headwinds today as the relationship between the UK and France continues to deteriorate. Reports today that a French fishing boat blocked a British cargo vessel from entering a Brittany port is likely to create additional tension over fishing rights between the two countries, as well as news that the UK has been excluded from talks regarding Channel migration.

US Dollar (USD) Unstable as Fed Policy Changes Undermined by Variant Fears

The US Dollar (USD) has remained volatile today, as investors flocked to other safe-haven currencies in the face of a new COVID-19 variant as the US markets were closed yesterday.

Minutes released following the Federal Reserve’s latest policy meeting on Wednesday are also likely to continue to affect USD’s movements, as an increasing number of the Fed’s policymakers now favour raising interest rates to combat ballooning inflation.

Investor’s fears that the Fed’s rate hike may come at the wrong time continue to weigh on the US Dollar as data shows that the country’s economy continues to recover. Paul Ashworth, chief U.S. economist at Capital Economics, had the following to say on the Fed’s change of policy:

‘The (policy committee) has clearly woken up to the realisation that, even if it falls back somewhat, inflation is likely to remain above target for some considerable time.’

GBP/USD Exchange Rate Forecast: Will PMI Figures Prompt Early Rate Hike?

Looking ahead to next week, the UK will see final manufacturing PMI figures for November on Wednesday. The UK is forecast to show a rise to 58.2 in its manufacturing sector. If these figures print as expected, it could prompt speculative bets in both currencies as investors eye an early interest rate hike.

Friday brings final November service PMI figures for the UK which are forecast to fall slightly to 58.6, which may undermine confidence in the Pound.

The US will also see multiple PMIs next week, with Wednesday’s final MARKIT manufacturing PMI for November forecast to rise to 59.1. Recent data from the country’s manufacturing sector has continually also show a rise in material prices which may prompt further bets on USD as inflationary pressures bite.

On Friday the US could see a day of mixed data, with non-farm payrolls data expected to show a continuing fall in unemployment. The country’s final MARKIT services PMI for November is forecast to fall however, so USD may fluctuate throughout the day as it responds to these competing outlooks.

Gareth Monk

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