March 24, 2020 - Written by John Cameron
STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Rises as US Fed Reveals ‘Bazooka’ Stimulus Package
GBP/USD Exchange Rate Edges Higher, Fed Outlines ‘Bazooka’ Stimulus Package
The Pound US Dollar (GBP/USD) exchange rate rose by 1% today after yesterday saw the US Federal Reserve unveil its essentially unlimited quantitative easing program to support the US economy. The pairing is currently fluctuating around $1.172.
Jingyi Pan, a market strategist at IG, commented:
‘Certainly, the Fed’s latest round of support measures had also been a strong show of the commitment from the central bank that helped to curb further downsides for the market on Monday.’
‘However, taking a look at the bigger picture, we continue to see both the US and Asia indices in a downtrend with the broad sentiment yet to show concrete improvement without a stabilisation of the coronavirus situation on a global scale.’
Today saw the release of the flash US Markit Manufacturing PMI for March, which fell into contraction territory at 49.2.
Chris Williamson, the Chief Business Economist at IHS, commented on the data:
‘The survey underscores how the US is likely already in a recession that will inevitably deepen further. The March PMI is roughly indicative of GDP falling at an annualised rate approaching 5%, but the increasing number of virus-fighting lockdowns and closures mean the second quarter will likely see a far steeper rate of decline.’
The US Dollar (USD) has also suffered from a temporary sell-off in favour of riskier assets following the Fed’s largescale efforts. Additionally, Italy’s easing death toll has provided some uplift in risk sentiment as an end in sight to the Covid-19 pandemic boosts market optimism.
GBP/USD Exchange Rate Rises Despite Contracting UK Services PMI
The Pound (GBP) edged higher against the ‘Greenback’ today despite Prime Minister Boris Johnson’s announcement of further draconian measures in the form of a nationwide lockdown.
Today also saw the release of the preliminary UK Markit Services PMI. The report showed that the UK’s largest sector had plummeted into contraction territory this month due to the coronavirus pandemic.
Duncan Brock, the Group Director at CIPS, was downbeat in his assessment, saying:
‘The services sector received the largest blow as citizens reduced their social activity and leisure activities were abandoned. The sector recorded its worst drop in activity since 1996 when the survey began. New orders also took a significant hit as the rapid realisation of the significance of COVID-19 applied an abrupt brake on consumer-facing businesses.’
With the UK’s economy looking increasingly grim, it’s unlikely that the GBP/USD exchange rate will hold onto its gains throughout the course of the week.
GBP/USD Forecast: ‘Greenback’ to Rise as Safe-Haven Demand Returns
US Dollar (USD) investors will be awaiting tomorrow’s release of the US Durable Goods orders report for February. Any signs of improvement would prove USD-positive.
However, coronavirus developments will remain in focus. As a result, we could see the ‘Greenback’ claim back some of its safe-haven appeal as global markets continue to teeter towards to recession territory.
The GBP/USD exchange rate will likely fall in the coming days as the UK economy struggles under the approximate three-week lockdown.
However, if Chancellor Rishi Sunak announces any further measures to support individuals and businesses throughout the crisis we could see the Pound hold onto some of its gains.
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