August 12, 2020 - Written by John Cameron
STORY LINK GBP to USD Exchange Rate Avoids Losses on UK Recession News as Both Currencies Unappealing
Despite broad weakness in the Pound this afternoon, the British Pound to US Dollar (GBP/USD) exchange rate’s movement has been mixed and losses have been limited. The US Dollar remains unappealing due to US stimulus concerns and economic uncertainties, so the pair isn’t as weak as it could have been. Towards the end of the week, US data is more likely to drive the pair.
Last week ultimately saw GBP/USD slide as the US Dollar attempted a rebound on stronger than expected US data. GBP/USD opened the week at the level 1.3086, and briefly jumped up to a half year best level of 1.3182, before tumbling towards the end of the week and closing at the level of 1.3054.
Movement has been similarly mixed this week so far. The pair briefly edged higher earlier in the week but is now sliding again. However its losses have been limited due to US Dollar weakness and GBP/USD has only slipped slightly to around the level of 1.3024.
GBP Exchange Rates Fail to Benefit from Slightly Better than Forecast UK Growth
Following yesterday’s mixed UK job market results, today’s UK growth rate report was yet another major report painting a mixed outlook for Britain’s embattled economy.
Britain’s Q2 Gross Domestic Product (GDP) growth rate was forecast to contract at a huge –22.4% in Q2, but instead the figure came in at a slightly better –21.7%.
Still, the figure was dire overall. It showed that Britain’s economy was among the worst hit major economies from the coronavirus pandemic in Q2.
The day’s other data was also mixed. Production stats beat forecasts in some notable prints, but business investment was far worse than predicted.
The government has been attempting to encourage the economy to rebound from lockdown, but there are fears a fresh lockdown is possible. Analysts are also warning that the government may need to ramp up support for businesses and employees.
According to Nimesh Shah, CEO at Blick Rothenberg:
‘The UK is in deep recession, green shoots are appearing but is the worst yet to come?
The critical time will be the last quarter of 2020, and there is a lot resting on the impact of the furlough scheme finally closing in October, the important festive trading period for businesses and a realistic chance of successful vaccine becoming available. Many businesses are limping through to Christmas, but it will be a rollercoaster between now and the New Year with so many unpredictable elements in play.’
USD Exchange Rates Struggle to Keep Recovering amid Stimulus Impasse
The US Dollar experienced a jump in demand last week, as the latest US Non-Farm Payroll report beat forecasts.
However, the US Dollar has struggled to continue its rally. A lack of continued strong data, as well as concerns about how the US economy is weathering the coronavirus pandemic, are weighing on the US currency.
What’s more, the US Dollar had been benefitting from expectations that US Congress would be able to pass new stimulus measures to help the US economy to weather the pandemic.
Negotiations in US Congress remain stuck though. Today, the US Dollar was hit by fresh concerns that stimulus would fail to be reached.
According to FX Analysts at Commerzbank:
‘If there is no movement in the negotiations soon, the Fed’s concerns are quite likely to have an impact on the dollar sooner or later’
GBP/USD Exchange Rate Forecast: US Jobless Claims and Retail Sales in Focus
Most of this week’s influential data has been published already. With UK data mixed and largely uninspiring, the Pound is more likely to be driven by rival strength and global coronavirus developments for the remainder of the week.
US Dollar investors, on the other hand, will be anticipating some key US ecostats due in the coming sessions.
Thursday’s American session will see the publication of US jobless claims data. Following last week’s better than expected US Non-Farm Payroll stats, improvements in jobless claims could further support US Dollar strength.
On the other hand, weaker figures could make investors even more hesitant to buy the US Dollar.
Friday’s US retail sales report could be even more influential for the Pound to US Dollar exchange rate outlook if it surprises investors.
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TAGS: Pound Dollar Forecasts