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Pound US Dollar (GBP/USD) Exchange Rate Hits 31-Month High on US Stimulus Anticipation

December 31, 2020 - Written by Frank Davies

Pound US Dollar (GBP/USD) Exchange Rate Shrugs off Tightened UK Social Restrictions

The announcement of tightened social restrictions in the UK was not enough to keep the Pound to US Dollar (GBP/USD) exchange rate from rising to a 31-month high ahead of the New Year.

While worries over the outlook of the UK economy remain this failed to keep the pairing from hitting its highest level since May 2018, fuelled by the relative weakness of the US Dollar.

Investors continued to sell out of the US Dollar on Thursday as the prospect of the upcoming US fiscal stimulus package generally dampened demand for the safe-haven currency.

With markets maintaining a generally risk-positive outlook there was no room for USD exchange rate strength, especially in the wake of a strong Chinese manufacturing PMI reading.

Rising US Initial Jobless Claims Set to Fuel Further USD Exchange Rate Losses

Further losses could be in store for the US Dollar today if the latest initial jobless claims figure rises on the week as anticipated.

Confirmation that unemployment continued to rise over the course of December could give investors further incentive to sell out of the US Dollar for the time being.

Even with fiscal stimulus measures now on the horizon the continued deterioration of the US labour market would leave USD exchange rates exposed to downside pressure.

Unless initial jobless claims show a smaller uptick than forecast the US Dollar looks set to experience fresh losses across the board, potentially pushing the GBP/USD exchange rate to fresh heights.

As long as markets maintain their generally risk-positive outlook the potential for any US Dollar recovery appears limited, especially in the face of Covid-19 vaccine optimism.

Pound Vulnerable to UK Mortgage Approvals Decline

Looking ahead to next week, the Pound could face renewed pressure thanks to the release of November’s UK mortgage approvals and consumer credit figures.

Evidence that sentiment among lenders and consumers deteriorated further in November could see the GBP/USD exchange rate knocked off its positive bias.

With the Covid-19 crisis looking set to weigh on the UK economy for some time yet to come any signs of weakness are likely to dent the appeal of the Pound.

Brexit-based anxiety could also weigh on the GBP/USD exchange rate next week, given the UK’s exit from the Brexit transition period.

Unless the new trade relationship between the UK and EU shows signs of smoothness, with decreased disruption at the border, the mood towards the Pound looks set to sour once again.
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