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Pound US Dollar (GBP/USD) Exchange Rate Advances Towards Five-Month Peak

August 5, 2020 - Written by John Cameron

Pound Sterling US Dollar (GBP/USD) Exchange Rate Climbs Back Towards Pre-Pandemic Levels

The Pound Sterling US Dollar (GBP/USD) exchange rate edged 0.2% higher on Wednesday morning. This left the pairing trading at around $1.3117.

The Pound neared a five-month high against the Dollar today thanks to a broadly weaker US currency as the US coronavirus relief package stalled in Congress.

A weaker USD allowed Sterling to climb back towards pre-pandemic levels and began to advance towards a five-month peak.

Sterling was also supported by upbeat PMI surveys which showed Britain’s manufacturing and services businesses grew at the quickest rate in more than five years last month.

Britain’s services PMI jumped to a five-year high of 56.5, up from June’s disappointing reading of 47.7.

Commenting on the latest data, Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said:

‘The services sector showed a strong return to form at the beginning of the third quarter, with the sharpest rise in overall activity since July 2015 and with new orders making a comeback at the fastest pace since the beginning of the year.

‘This further progress on June’s improvements was propelled by the easing of lockdown measures, and returning staff built up operating capacity for any new orders. Business optimism was also at a five-month high in July as the economic situation improved.’

Although, Pound gains were limited as the PMI figures reflect the rate of growth rather than the level of output. Many economists expect it will take the country years to rebound after suffering a record -25% loss in output during the beginning of the lockdown.

Added to this, a new study published yesterday claims if there is a second wave of the coronavirus pandemic in Britain it will be twice as bad as the initial outbreak.

US Dollar (USD) Slumps as Coronavirus Relief Package Stalls

The US Dollar remained weaker on Wednesday as US bond yields slumped and the US coronavirus relief package stalled once again. Investors weighed up the prospects of further monetary easing to support the struggling economy.

According to Lee Hardman, MUFG’s currency analyst:

‘The ongoing fall in US real yields is helping to lift the price of gold and weakening the US Dollar.’

He also noted that the bank had lowered its forecasts for the US currency on the basis that the Federal Reserve is likely to loosen policy further later in the year.

Meanwhile, Democrats in Congress and White House negotiators are making attempts to reach a deal on a further aid package by the end of the week.

On Tuesday, US Treasury Secretary Steven Mnuchin said that progress had been made on key parts of the bill.

The Dollar has struggled as markets continued to perceive the economic recovery in the world’s largest economy was lagging behind the recovery in Europe.

Pound US Dollar Outlook: Bank of England in Focus This Week

Looking ahead to this afternoon, the US Dollar (USD) could slump further against the Pound (GBP) following downbeat US data.

The latest services PMI is expected to remain firmly in contraction territory in July which could further dampen hopes of a speedy recovery form the coronavirus crisis for the world’s largest economy.

Meanwhile, Thursday could see the Pound soon give up any gains following the Bank of England’s (BoE) meeting.

While the bank is not expected to cut interest rates, traders will be watching closely to see whether policymakers will hint at the prospect of taking rates into negative territory. If the bank’s monetary policy statement is overly dovish it will send the Pound US Dollar (GBP/USD) exchange rate lower.

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