August 3, 2020 - Written by John Cameron
STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Slides After Best Monthly Performance in Over a Decade
Pound Sterling US Dollar (GBP/USD) Exchange Rate Sees Best Monthly Performance in 10 Years
The Pound Sterling US Dollar (GBP/USD) exchange rate edged -0.3% lower on Monday morning. This left the pairing trading at around $1.3040.
Sterling remained steady today as it was able to hold above $1.30 earlier as markets weighed up the government’s strategy of local lockdowns. They also awaited the Bank of England’s (BoE) latest policy meeting this week.
However, the pairing edged lower later in the morning.
Last month was the Pound’s best month against the US Dollar in over a decade. Although, analysts attributed this with the Dollar’s weakness rather than GBP strength.
The Pound remained flat as lockdown measures across northern England were made stricter and further easing measures were postponed by Prime Minister Boris Johnson for at least two weeks.
Britain has the fourth highest coronavirus death toll in the world and a local official stated a ‘major incident’ was declared in Manchester thanks to rising Covid-19 cases.
In a note to clients, Commerzbank analyst Thu Lan Nguyen wrote:
‘In contrast to the beginning of the pandemic, the British government is now taking far tougher action to prevent the virus from spreading again at a rapid rate.
‘The trauma of the first phase of the virus, in which the British government introduced a lockdown late compared to most other European countries, which is why the UK temporarily became a corona hotspot, seems to be deep-seated.
‘However, the fact that the British government appears to be capable of learning is now being rewarded with a strong Pound.’
US Dollar Sees Worst Monthly Performance in Decade
The US Dollar was able to make gains against a basket of rivals on Monday as safe-haven demand offered the currency some respite following its worst monthly performance in 10 years.
The US Dollar index lost over 4% in July, making it the worst month since September 2010 and was down -10% from its peak in March.
Analysts believe the fall was due to the ‘Greenback’s waning safe-haven appeal and expectations of further easing of US monetary policy. The lack of agreement amongst US lawmakers also weighed on the currency.
According to Viraj Patel, global FX and macro strategist at Arkera:
‘There’s usually something that trips global markets up in August, and this year might not be different given the growing list of market risks.
‘Given the way that risky assets have rallied in recent months, this rising geopolitical threat could lead to a squaring off in positions and potential reversal of recent trends that would help the Dollar recoup its recent losses.’
British Business Sentiment Hits 28-Month High
Meanwhile, data from Britain revealed that the country’s latest manufacturing PMI expanded in July, rising to 53.3.
GBP was offered some support as business sentiment hit a 28-month high. Data also revealed output in the sector hit a 32-month high, although the latest reading was slightly below forecast.
Commenting on the latest data, Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said:
‘The makers were on the march again in July as production started to flow more easily and businesses saw new orders rise at the fastest pace since the end of 2018.
‘Driven largely by demand from the domestic market, clients looked towards building more localised supplier bases as opportunities for trade were unblocked with the end of the UK’s lockdown. However, overseas customers failed to deliver any positive news. Export orders fell for the ninth month in a row, exposing the ongoing fragility of the broken global marketplace due to the pandemic.’
Pound US Dollar Outlook: PMIs and Bank of England (BoE) in Focus This Week
Looking ahead to this afternoon, the US Dollar (USD) could slide against the Pound (GBP) if risk appetite is boosted by upbeat US data.
If the Federal Reserve’s preferred PMI measure, the ISM manufacturing PMI jumps higher than expected in July, traders will move away from the safe-haven ‘Greenback’.
However, traders are likely to remain cautious as the Bank of England’s (BoE) latest monetary policy meeting approaches.
If markets become increasingly cautious ahead of the BoE’s meeting, it will weigh on Sterling and leave the Pound US Dollar (GBP/USD) exchange rate muted.
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TAGS: Pound Dollar Forecasts