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GBP to USD Exchange Rate Attempt Recovery as Moderna Vaccine Approved for UK Use

January 8, 2021 - Written by Frank Davies

The British Pound to US Dollar (GBP/USD) exchange rate is attempting to rebound again today, but has generally remained within the same lower region throughout this week. While a third coronavirus vaccine was approved for UK use, concerns about Britain’s economic resilience amid a third national lockdown persist, and the US Dollar’s appeal as a safe haven is slightly persisting as markets digest the past week’s political jitters.

After opening this week at the level of 1.3676, GBP/USD briefly hopped higher. GBP/USD touched on a high of 1.3697, the best level for the pair in two and a half years, since mid-2018.

Since then, GBP/USD has tumbled and is now struggling to mount a meaningful recovery from that Monday tumble. At the time of writing, GBP/USD is trending above the week’s lows but has still only recovered to around the level of 1.3597 - still a cent below its best levels in two years.

GBP Exchange Rate Recovery Attempts Limited as Britain’s Coronavirus Situation Gloomy

At the beginning of the week, the Pound was hit lower by news that Britain would be put under its third national lockdown. As coronavirus infections surged across the nation, UK Prime Minister Boris Johnson announced the toughest restrictions since the beginning of the pandemic.

Since then, there has been little to support the Pound. UK PMI data has been underwhelming, and analysts expect the Pound will continue to struggle. This is keeping a lid on the Pound’s potential for recovery.

Even so, the Pound is attempting to rebound today. Investors are buying the Pound back from its worst levels, and this movement is being supported slightly by news that the coronavirus vaccine from Moderna has been approved for UK use.

Britain has already bought 7m doses of the Moderna vaccine.

However, expectations for Britain’s economic outlook in the coming months are gloomy overall. This is limiting the Pound’s strength and its ability to return to near its best levels against the US Dollar.

According to Economists at MUFG:

‘The national lockdown announced on January 4 will ensure a double-dip recession. MUFG forecasts -3.8% GDP in Q4 and -2.7% in Q1 2021. Assuming the current lockdown serves to alleviate capacity pressures on hospitals and vaccination roll-outs accelerate sharply, the hit to the economy in Q4 and Q1 can reverse quickly. The 2 million per week government target for vaccinations will be tough to achieve and we can only expect a gradual reversal from full lockdown from March onwards.’

USD Exchange Rates Rebound amid Busy Markets and Relief

The US Dollar has seen mixed movement in recent weeks. Investors have been selling the US Dollar lately as confidence rises and markets look for riskier assets, but political uncertainty in the past week did briefly lead to a rise in safe haven demand.

Surges in coronavirus infections across the world, combined with US political chaos in the middle of the week, made some investors look for safer investments.

On Wednesday, the US Capitol came under siege from white supremacist rioters, looking to overturn the result of the US 2020 Presidential Election.

Since then, the lax police presence on the day has come under heavy criticism from politicians across the board.

On the other hand, news that the US Democratic Party had won a Senate majority boosted hopes that the upcoming Joe Biden administration could push through more fiscal stimulus. This also helped the US Dollar slightly.

However the news has also boosted market sentiment overall. The US Dollar is unappealing in times of higher market sentiment, so its current strength is limited. Disappointing US Non-Farm Payrolls data also limited USD demand today.

GBP/USD Exchange Rate Forecast: US Dollar Recovery Attempts May Not Last

Not only are today’s NFP stats weighing on the US Dollar’s attempts to advance, but analysts believe there may not be much boosting the US Dollar looking forward either.

The US Dollar could continue to fall as market risk-sentiment continues to rise and the Federal Reserve remains unlikely to make policy more hawkish. According to Marshall Gittler at BDSwiss:

‘I think once this euphoria dies down, the Dollar is likely to resume its downtrend trend, because I don’t think the Fed will be so eager to taper,

I think the US employment picture is likely to lag that of other countries and therefore the US tightening cycle is likely to lag. That makes the picture for the Dollar negative, in my view.’

Next week’s US data, including inflation, trade and retail stats, would need to impress for the US Dollar outlook to improve much.

The Pound remains unappealing too, but unless next week’s UK growth stats disappoint the Pound to US Dollar exchangwe rate may not be in for any fresh downside shocks just yet.
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