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Pound US Dollar (GBP/USD) Exchange Rate Flat as Only 25% of Companies Ready for Brexit

July 13, 2020 - Written by John Cameron

Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted as Traders Eye UK’s ‘New Start’ Plan

The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat on Monday. This left the pairing trading at around $1.2599.

Earlier today, GBP/USD rose towards a 200-day moving average of $1.27 before falling back.
Sterling was boosted by the rise in risk appetite and further stimulus announced by Boris Johnson’s government earlier last week.

Fiscal stimulus announced by British Chancellor Rishi Sunak attracted investor attention, and allowed the Pound to rise by around 2% so far this month.

Sterling was only second to the Norwegian Krone as the best performing currency so far in July as traders grew more confident. Hopes for an economic recovery after the coronavirus crisis buoyed hopes and sent Sterling higher against safe-haven currencies such as the US Dollar.

Commenting on this, MUFG currency analyst, Lee Hardman noted:

‘The Pound remains strongly positively correlated with the performance of global equities. According to our calculation, the 30-day rolling correlation between daily percentage changes in GBP/USD and MSCI ACWI index remains elevated at +0.56.’

Although, the pairing remained flat as the UK’s departure from the European Union later this year continued to limit GBP gains.

Boris Johnson’s government has been urging businesses and individuals to prepare for the end of the transition period. The government released an information campaign called ‘The UK’s new start: let’s get going.’

However, a survey form the Institute of Directors noted that only a quarter of companies were fully ready for the end of the transition period.

US Dollar (USD) Struggles as Markets Remain Cautiously Optimistic

The US Dollar remained under pressure on Monday as traders looked ahead to incoming economic data and US corporate earnings to see whether the guarded optimism is justified.

Last week saw the Dollar end its third consecutive week of losses as traders flocked to riskier assets as they bet the worst of the coronavirus crisis was over.

Optimism increased after the German government said the economy had turned a corner in the crisis and had now passed its lowest point meaning the recovery process had begun.

However, GBP/USD remained flat as traders remained cautious after Florida reported an increase in more than 15,000 cases over 24 hours. This is a record for any US state, and surpassed New York’s peak in April.

In a note to clients, Lars Sparresø Merklin, senior FX analyst at Danske Bank, wrote:

‘We expect a broad Dollar decline to continue, supporting emerging market FX (despite local coronavirus issues) and see Euro/Dollar at $1.15 in 3 months.

‘This continues to be a recurring observation, with markets not being weighed down by the current host of problems with coronavirus in EM and some US states, not least the likely still-weak current earnings.’

Pound US Dollar Outlook: Will Inflation Data Boost the ‘Greenback’?

Looking ahead to Tuesday morning, the Pound (GBP) could slide against the US Dollar (USD) following the release of the latest UK GDP data.

If data reveals that the British economy contracted more than expected in May, it will weigh on Sterling sentiment.

Meanwhile, the Dollar could receive an upswing in support following the release of the latest US inflation data.

If June’s US inflation rate increases more than expected, showing signs the economy is on track for a recovery, the Pound US Dollar (GBP/USD) exchange rate will edge lower.

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