August 13, 2020 - Written by David Woodsmith
STORY LINK GBP to USD Exchange Rate Up Again as Various Factors Leave US Dollar Unappealing
Despite the Pound’s tumble in reaction to a gloomy UK economic outlook yesterday, the British Pound to US Dollar (GBP/USD) exchange rate has rebounded again today. Investors are buying the pair due to selling in the US Dollar, as the US outlook remains dampened by coronavirus fears, ahead of major US data due before the end of the week.
The US Dollar’s recovery attempts have been highly mixed and limited. Last week saw GBP/USD open at the level of 1.3086 and briefly jump to a half year best of 1.3176, before tumbling and ending the week lower at the level of 1.3054.
This week’s movement has been similarly mixed. GBP/USD has been fluctuating between lows of 1.3007, and highs of 1.3125. Yesterday’s dip was short-lived, and at the time of writing on Thursday, GBP/USD was once again trending above the week’s opening levels in the region of 1.3103.
GBP Exchange Rates Up Against Weak USD as Growth Results Unsurprising
Yesterday saw the publication of Britain’s Q2 2020 Gross Domestic Product (GDP) growth rate stats. The data did beat forecasts in some key prints, but overall it showed a massive Q2 contraction just as many economists feared.
Britain’s economy was revealed as being one of the currencies to be hit hardest by the coronavirus pandemic during the second quarter.
Sterling spent much of Wednesday evening weaker, as investors grew concerned that Britain’s economy would struggle to rebound much from the coronavirus pandemic.
Analysts are concerned that the UK government has not done enough to support Britain’s job market amid the pandemic. There are concerns that the job market could collapse and economic activity could plummet in the coming months.
However, Sterling ultimately rebounded against the US Dollar today. Investors were more willing to buy the Pound over the US Dollar, as yesterday’s UK news was ultimately not that surprising to markets.
According to Strategist at RBC:
‘In reality, most market participants had been pencilling in a decline in Q2 GDP of ‘around’ 20% for some time now so yesterday’s release from the ONS didn’t come as too much of a surprise even if the magnitude of the contraction dwarfs anything any of us have experienced before,’
USD Exchange Rates Unappealing as US Stimulus Attempts Remain Stuck
Unlike the Pound, the US Dollar has seen surprises to the downside this week. This is keeping the already weak currency unappealing.
Following last week’s stronger than expected US Non-Farm Payroll report, the US Dollar briefly experienced a rebound in demand.
Investors also bought the US Dollar on expectations that US Congress would be able to overcome differences and pass fresh stimulus to defend the US economy from the coronavirus pandemic.
However, as this week has drawn on, markets are becoming more doubtful that US Congress will be able to pass new stimulus. Congress remains at an impasse, denting market expectations and weighing on the US Dollar’s attempts at recovery.
According to Francesco Pesole, FX Strategist at ING, the US Dollar remains unappealing in this market outlook:
‘The question now is whether this will be enough to prompt a slowdown/correction in the stock rally,
Latest evidence suggests investors may turn a blind eye to the matter, and the balance of risks remains tilted to the downside for the Dollar today as well.’
GBP/USD Exchange Rate Forecast: US Retail Sales Report Ahead
Most of this week’s key UK and US data has been published. However, the Pound to US Dollar exchange rate could still see a late-week shift in movement depending on how tomorrow’s key US stats unfold.
July’s US retail sales results will be published during Friday’s American session. They are expected to show that the rebound in activity slowed in July, from 7.5% to 1.9%.
If US retail sales come in weaker than expected, markets may become anxious that the US economy is not weathering the coronavirus pandemic as much as hoped. This could lead to fresh US Dollar weakness before markets close.
On the other hand, an unexpectedly strong retail report, as well as any potential improvement in US Congress stimulus negotiations, could instead lead to US Dollar gains.
Pound movement will be more influenced by UK coronavirus and Brexit developments in the coming sessions.
Looking to next week, the Pound to US Dollar exchange rate could be influenced by UK inflation stats and Federal Reserve
meeting minutes as well.
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TAGS: Pound Dollar Forecasts