GBP to USD Exchange Rate Returns to Best Levels Since Pandemic Began amid Fed Uncertainty

July 29, 2020 - Written by John Cameron

STORY LINK GBP to USD Exchange Rate Returns to Best Levels Since Pandemic Began amid Fed Uncertainty

Investors continue to buy the British Pound to US Dollar (GBP/USD) exchange rate today, despite a lack of strong support for the Pound. It comes as the US economic outlook becomes increasingly gloomy ahead of this evening’s Federal Reserve policy decision, and markets expect the Fed could take another dovish shift on its own outlooks.

GBP/USD has seen consistent gains for the past couple of weeks, as the US Dollar continues to tumble. Last week saw GBP/USD climb from the level of 1.2568 and gain over two cents to close the week at 1.2795.

This week’s movement has been just as bullish so far as well, despite only being half-way through. GBP/USD is trending near a high of 1.2986 at the time of writing. Not only is this almost two cents above the week’s opening levels, it is also the highest GBP/USD level since early March, before the coronavirus pandemic went global.

GBP Exchange Rates Climbing on Rival Weakness despite Lack of Drive

The Pound is climbing against some major rivals this week, including the US Dollar. Its gains have been primarily due to rival weakness, but investors are also buying the currency from its cheapest levels.

Sterling has been undermined by domestic coronavirus and Brexit concerns for months.

However, as UK data has started to beat forecasts more often, investors are becoming hopeful that Britain’s coronavirus situation hasn’t been quite as bad as the US situation.

Last week’s UK retail and PMI stats beat forecasts, and the CBI’s UK retail data was better than expected this week as well.

Still, while the Pound is benefitting slightly from these factors, some analysts remain concerned about further long-term weakness ahead for Sterling, particularly with the Bank of England (BoE) decision next week.

According to Kamal Sharma, Currency Analyst at Bank of America (BofA):

‘The fortunes of the pound will increasingly be driven by the monetary policy stance, the ability of the economy to rebound from the global pandemic, and Brexit negotiations, which are effectively stuck in the mud,’

USD Exchange Rates Plunge as US Economic Outlook Overcast with Gloom

The US Dollar’s weakness has only been worsening in recent weeks, as investors become more and more anxious about the nation’s handling of the coronavirus pandemic.

As infections surge across the nation and US data continues to show deeper than expected weakness, the US Dollar has been less and less appealing, unable to even benefit from market safe haven demand.

With the US Dollar’s appeal as a safe haven fading amid US economic concerns and the pandemic still worsening, analysts began to speculate that the Federal Reserve could signal even further monetary policy easing could be ahead.

According to Derek Halpenny, Head of Research at MUFG Bank, the US and US Dollar outlooks are both notably negative:

‘These factors mean we should expect a decidedly more pessimistic assessment of the outlook for economic growth. We should also probably expect some focus on the US dollar, given the notable move we have had since the last meeting.’

While today’s US trade data was better than forecast in some prints, it was not enough to bolster USD demand ahead of the Fed policy decision.

GBP/USD Exchange Rate Forecast: Federal Reserve Decision Could Lead to Further Gains

This evening’s Federal Reserve policy decision is set to be one of the week’s most influential events for Pound to US Dollar exchange rate investors.

Due to concerns about the US economy amid the coronavirus pandemic, analysts predict a more cautious tone from the bank and potentially signals of more dovish policy.

If the bank does hint at looser policy ahead, GBP/USD could be in for further gains that could keep it near its best levels since the coronavirus pandemic began.

However, if the Fed shows no notable shifts or even shows optimism, GBP/USD may slip slightly from its highs as the US Dollar could recover.

Looking ahead, upcoming US data could also boost US Dollar support if it impresses.

Tomorrow will see the publication of US growth rate stats. Friday’s US PCE inflation data could also influence the Pound to US Dollar exchange rate.

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TAGS: Pound Dollar Forecasts