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Pound to US Dollar (GBP/USD) Exchange Rate Falls as Safe-Haven Demand Increases

May 22, 2020 - Written by John Cameron

GBP/USD Exchange Rate Sinks as US-China Trade Tensions Boost ‘Greenback’ Safe-Haven

The Pound to US Dollar (GBP/USD) exchange rate fell by -0.3% today, with the pairing currently trading around $1.217.

The US Dollar (USD) has continued to benefit from increasing demand for safe-haven currencies today on a fresh source of tension between the United States and China.

Neil Jones, the head of sales at Mizuho Bank, commented:

‘Currently currencies are reflecting the risk-off scenario and that, for today anyway, explains why the dollar is higher.’

‘I think it will continue to go higher today and weigh on currencies like the euro and the pound, and the offshore yuan.’

Tensions between US-China are set to continue but, according to Mr. Jones, the ‘Greenback’ could suffer in the near-term as hopes for a trade deal between the two countries looks increasingly likely despite the recent controversies.

Meanwhile, oil prices fell today after China failed to set an economic growth target for his year, sparking concerns that the coronavirus pandemic could cap oil demand from the world’s second-largest oil user.

Consequently, the US Dollar has been buoyed by a surge in safe-haven demand as the global economy continues to look uncertain as nations continue to tackle the fallout of the Covid-19 crisis.

Pound (GBP) Struggles as UK Covid-19 Infection Rate Remains Steady Two-Weeks in a Row

The Pound (GBP) suffered today after it was revealed that the UK R-number, which tracks the reproductive rate of the coronavirus, has remained steady for a second week in a row. As a result, Sterling investors have become anxious about Britain’s long-delayed economic recovery.

In UK economic data, today saw the release of the UK government borrowing figure for May, which soared above forecasts to £61.4 billion.

Jonathan Athow, the deputy national statistician at the Office for National Statistics (ONS), described April’s figure as ‘pretty much unprecedented’.

Athow also added:

‘Borrowing now is about six times what it was [in April] last year, so we are talking about some really significant changes in the government finances.’

Today also saw the release of the UK retail sales for April, which plummeted owing to the UK’s nationwide lockdown.

Richard Lim, the chief executive of Retail Economics, commented on the UK’s retail report:

‘Clothing retailers were the hardest hit as the absence of social interaction, whether that's going to work, seeing friends or heading off on holiday, decimated demand for new outfits.’

GBP/USD Forecast: Could Poor US Housing Data Weigh on the ‘Greenback’?

US Dollar (USD) investors will be looking ahead to Tuesday’s publication of the US housing data for April. If house sales continue to fall, however, we could see the ‘Greenback’ shed some of its gains as the US economic outlook darkens.

Meanwhile, Sterling traders will be keeping an eye on Tuesday’s publication of the UK CBI Distributive Trades Survey. However, if the UK’s economic situation continues to deteriorate, Sterling could suffer.

The GBP/USD exchange rate will continue to be driven by the UK’s coronavirus situation next week. If the UK’s R-number shows any signs of falling, then we could see the Pound rise on hopes for the British economy’s recovery.
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