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GBP/USD Exchange Rate Heads Higher as Risk-On Market Mood Persists

February 11, 2021 - Written by John Cameron

Pound to US Dollar Exchange Rate Rises as Demand for Safe-Haven Currencies Falls After Positive US-China Phone Call

The Pound to US Dollar exchange rate held steady today. The pairing is currently fluctuating around $1.38.

The US Dollar has been undermined by risk-on market mood today following a positive conversation between US President Joe Biden and his Chinese counterpart, Xi Jinping.

As a result, demand for the safe-haven ‘Greenback’ has fallen with traders now turning to riskier assets instead.

Additionally, rising optimism over global Covid-19 rollouts has boosted confidence in the global economy’s ability to recover in the months ahead.

Yesterday also saw the headline US inflation gauge fall below consensus in January, holding at 1.4% and missing forecasts of a 1.5% increase.

Consequently, USD investors are becoming increasingly underwhelmed by the strength of the American economy.

Turning to today’s economic data, the latest US Initial Jobless Claims for February came in at a worse-than-expected 793 thousand.

Gus Faucher, chief economist at PNC Financial Services Group, commented:

‘Job growth will remain soft for the next few months as the nation continues to struggle with the pandemic. But job growth will pick up in the spring as vaccine distribution and better weather make people more willing to venture out, and stimulus efforts have given consumers more money to spend.’

Pound Heads Higher Despite Uncertainty About UK Summer Holidays

The Pound rose against the ‘Greenback’ today despite growing concerns over the future for the UK economy after Health Secretary Matt Hancock remained cool about prospects for summer holidays.

As a result, GBP investors are worried that lockdown restrictions could remain in place in the months ahead, limiting the nation’s ability to recover its economy.

Mr Hancock told BBC Breakfast:

‘I know that people are yearning for certainty over whether they can have a summer holiday, but pandemics are difficult times and there is a lot of uncertainty, so I am afraid that people will have to be patient before we can get that certainty.’

However, in more positive news, today saw the daily case number of Covid-19 fall by -6,189 against last week.

In UK economic news, today saw the release of January’s RICS Housing Price Balance, which missed forecasts at 50%.

Consequently, GBP investors are becoming more worried about the prospects for the UK economy in the months ahead, with lockdown restrictions preventing the economy’s recovery.

GBP/USD Outlook: UK GDP Data in Focus

Pound investors will be monitoring tomorrow’s publication of the flash UK GDP data for the fourth quarter. If this confirms consensus and rises by 0.5%, then we could see Sterling investors become more cautious about the outlook for the economy.

However, Sterling could edge higher as the UK Government continues its speedy Covid-19 vaccination rollout. Consequently, GBP could begin to climb against its peers as investors become steadily more confident about the nation’s economic recovery in the months ahead.

US Dollar traders will be awaiting tomorrow’s release of the preliminary US Michigan Consumer Sentiment Index for February, which is expected to rise to 80.8. As a result, we could see the ‘Greenback’ benefit from an improved outlook for America’s economy going forward.

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