July 30, 2020 - Written by John Cameron
STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Flat as Fed Promises to Do What it Can ‘For as Long as it Takes’
US Dollar (USD) Muted as US Economy Expected to Suffer Worst Contraction Since Great Depression
The Pound Sterling US Dollar (GBP/USD) exchange rate remained largely flat. This left the pairing trading at around $1.3000.
The US Dollar remained flat against the Pound after the US Federal Reserve left interest rates unchanged as expected.
According to the Fed’s chief, the surge in coronavirus cases has begun to weigh on US economic activity. He promised the bank would ‘do what we can, and for as long as it takes’ to help limit the damage to the world’s largest economy and boost growth.
Fed Chair Jerome Powell noted that the recent data releases suggested there was a ‘slowing’ in the pace of recovery. He also noted that the US has ‘entered a new phase in containing the virus, which is essential to protect both our health and our economy.’
The central bank’s policy statement released after its two-day meeting has been directly linked to the economic recovery from the coronavirus crisis. More than 150,000 Americans have died from Covid-19.
In the Federal Open Market Committee’s (FOMC) minutes, it noted:
‘The path of the economy will depend significantly on the course of the virus.’
Added to this, traders await the latest GDP data which is expected to show the world’s largest economy has suffered a historic plunge in the second quarter.
The economy is likely to have suffered its worst contraction since the Great Depression, which could potentially wipe out more than five years of growth.
Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles noted:
‘The bottom fell out of the economy in the second quarter. The outlook is not very good. Americans are not behaving well in terms of social distancing, the infection rate is unacceptably high and that means economic growth cannot gain any traction.’
Sterling (GBP) Struggles as UK Car Building Tumbles to Lowest Level Since 1954
The Pound remained flat on Thursday as data revealed that around one in three furloughed workers in Britain returned to their jobs during the first two weeks of July.
The Office of National Statistics revealed that around 7% of workers at businesses surveyed had returned to work, leaving the remaining 17% on furlough. The return to work was largely linked to the reopening of the hospitality industry at the start of the month.
The data showed the sector with the largest amount of workers returning from furlough was the accommodation and food services businesses. Although, while 18% returned to work, 43% remained on furlough.
However, Sterling struggled to make gains as the number of cars built in the UK tumbled to its lowest level since 1954.
The Society of Motor Manufacturers and Traders (SMMT) said that the coronavirus lockdown led to widespread job losses and warned that further job losses were at stake due to the ‘double whammy’ of Brexit.
Pound US Dollar Outlook: Will the US Suffer Worst Contraction Since the Great Depression?
Looking ahead, the Pound (GBP) could suffer losses against he US Dollar (USD) if risk appetite slumps later this afternoon.
The latest US GDP data is expected to show economic growth has plummeted in the second quarter, which could startle markets. Traders expect the country has suffered its worst contraction since the Great Depression during Q2.
Added to this, this afternoon will also see the latest US jobless claims reading which is also expected to show no signs of jobless claims slowing down. This is likely to weigh on risk appetite and send traders flocking to safe-haven assets such as the Dollar.
Friday morning could see the Pound suffer some further losses following the latest Nationwide housing prices data.
If housing prices tumble more than expected in July it will weigh on the British currency and send the Pound US Dollar (GBP/USD) exchange rate lower.
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TAGS: Pound Dollar Forecasts