GBP to USD Exchange Rate Recovers Last Week’s Losses as Vaccine Hopes Knock Safe Havens Lower

July 21, 2020 - Written by James Fuller

STORY LINK GBP to USD Exchange Rate Recovers Last Week’s Losses as Vaccine Hopes Knock Safe Havens Lower

Investors have seen little reason to buy the US Dollar lately, which is making it easier for the British Pound to US Dollar (GBP/USD) exchange rate to sustain a recovery after recent losses. The Pound has been benefitting from a combination of factors including hopes for a coronavirus vaccine, while the US outlook continues to be weighed by various factors such as surging coronavirus cases throughout the nation.

Last week’s session saw GBP/USD tumble from the level of 1.2622 to 1.2568. This loss of over a cent could have been even steeper if not for the US Dollar’s own weakness limiting its appeal. It also helped the pair to hold away from the week’s lows of 1.2501.

However, following a brief dip when markets opened yesterday, GBP/USD has put in a solid recovery attempt. GBP/USD has rebounded over a cent since it started to rally yesterday.

While GBP/USD is struggling to hold today’s one month high of 1.2714, the pair still trends well above last week’s levels in the region of 1.2683 at the time of writing.

GBP Exchange Rates Benefit from Market’s Vaccine Hopes

Despite broad market concerns over Britain’s economic outlook, as well as other factors like the nation’s coronavirus and Brexit situations, the Pound has been one of the more appealing major currencies this week so far.

Following last week’s plummet on poor UK growth rate results, investors have been returning to the Pound. Sterling has rebounded from its worst levels more easily as it capitalises on this week’s rise in market risk-sentiment.

The Pound has been benefitting strongly from this week’s rise in hopes that progress is being made on a coronavirus vaccine.

This is at least partially because British companies have reported progress in vaccine development this week.

The University of Oxford and AstraZeneca have reported results that have boosted market hopes for production of a vaccine within a year. In particular there is hope that a British vaccine could quickly make it to UK citizens.

Sterling has also been benefitting from other factors making investors more eager to take risks. According to Lee Hardman, Strategist at MUFG:

‘Generally, it’s more about improvement in general risk sentiment. When you have risk-on in equities, the Pound generally benefits,’

USD Exchange Rate Suffers from Risk-On Movement but Outlook Sees Signs of Life

The US Dollar is a currency typically correlated with market safe haven demand. Amid fresh hope for progress in a coronavirus vaccine, investors have once again been more eager to take risks, which has left safe haven currencies falling.

However, the US Dollar’s correlation to safe haven demand has been mixed lately. Surging US coronavirus cases have worsened US economic concerns and limited the US Dollar’s safe haven appeal.

As a result, market demand for the US Dollar has actually seen some fresh support amid this week’s latest political developments.

Following weeks of surging US coronavirus cases, US President Donald Trump appeared to be shifting stances in how to handle the pandemic.

According to Edward Moya, Analyst at OANDA, he could be influenced by poor polling numbers ahead of this year’s US election:

‘The virus data in the US suggests coronavirus cases are peaking, California, Florida, Georgia and North Carolina showed meaningful declines.....

The case curve seems to be flattening and hospitalizations continue to trend lower. President Trump also reversed his stance on masks and tweeted an image of himself wearing a face mask and indirectly called it patriotic. Over half of the US has mandatory mask orders in place. Trump’s troubling poll numbers have created a sense of urgency in changing the narrative so it is no surprise he is also bringing back his 5pm coronavirus task force briefings.’

GBP/USD Exchange Rate Forecast: Coronavirus Optimism Could Keep Pair Buoyed

As the Pound has been benefitting from market risk-sentiment this week, the Pound to US Dollar exchange rate could keep climbing if this optimism continues.

If there continues to be positive developments regarding the coronavirus vaccine and signs of economic recovery for example, risk-sentiment will persist. This could help GBP/USD to climb higher.

On the other hand though, if the US coronavirus situation continues to improve investors may begin to find the currency more appealing again following months of poor performance.

The US Dollar could also benefit if global coronavirus fears rise again, as this may boost the Dollar’s safe haven appeal again.

Notable data due for publication in the coming days includes US housing data tomorrow, UK industry data from CBI on Thursday, and PMIs on Friday.

July’s PMI projections from both the UK and US could cause some notable Pound to US Dollar (GBP/USD) exchange rate movement at the end of the week.

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TAGS: Pound Dollar Forecasts