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GBP/USD Exchange Rate Dips as Covid-19 Fears Return After Brazilian Covid-19 Variant is Found in the UK

March 1, 2021 - Written by John Cameron

GBP/USD Exchange Rate Falls as UK Manufacturing PMI Highlights Supply Chain Issues

The Pound to US Dollar exchange rate dipped today, with the pairing currently fluctuating around $1.39.
Sterling held steady against the ‘Greenback’ following the announcement that a highly infectious Brazilian variant of Covid-19 had been found in the UK.

Prime Minister Boris Johnson, however, said he was confident that evidence of the Brazilian Covid-19 variant in the UK would not hold up the easing of lockdown.

‘[O]ur whole strategy is to go forward in a way that is cautious but irreversible. And we don’t think that there’s any reason on this basis to change that now.’

However, the new variant is causing concern as it could present a threat to the efficacy of the vaccination programme and, if uncontained, increase infection rates.

In UK economic news, today saw the release of February’s Manufacturing PMI, which beat forecasts and rose by 55.1.

Rob Dobson, the director at IHS Markit, commented on the data:

‘The UK manufacturing sector was again hit by supply chain issues, COVID-19 restrictions, stalling exports, input shortages and rising cost pressures in February. Look past the headline PMI and the survey reveals near stagnant production, widespread shipping and port delays and confusion following the end of the Brexit transition period.’

US Dollar (USD) Exchange Rate Edges Higher Following a Surge in US Consumer Spending

The US Dollar exchange rate rose against many of its peers today following a surge in US consumer spending. Consequently, a degree of confidence has returned to the world’s largest economy.

Meanwhile, demand for the safe-haven US Dollar has been tempered by growing hopes over President Joe Biden’s $1.9 trillion stimulus program.

The historic stimulus package is yet to be finalised by lawmakers. However, USD investors are becoming increasingly hopeful that Congress will pass the massive stimulus plan.

As a result, risk-sentiment has improved on growing hopes that the world’s largest economy could begin to recover in the months ahead.

In US economic news, today saw the release of February’s ISM Manufacturing figure, which beat forecasts and rose by 60.8.

Analysts at Reuters commented on the data:

‘U.S. manufacturing activity increased to a three-year high in February amid an acceleration in new orders, but factories continued to face higher costs for raw materials and other inputs as the pandemic drags on.’

GBP/USD Exchange Rate Forecast: Could the ‘Greenback’ Fall on US Stimulus Optimism?

US Dollar traders will be awaiting tomorrow’s speech from Lael Brainard, a member of the Board of Governors at the Federal Reserve.

Any dovish comments about the US economy, however, could further drive-up demand for the safe-haven ‘Greenback’.

USD investors will also be monitoring developments around President Joe Biden’s $1.9 trillion stimulus plan.

If it looks more likely that this will pass through unchallenged by lawmakers, then the US Dollar could suffer as global risk sentiment improves.

The GBP/USD exchange rate could head higher this week, however, if the UK’s Covid-19 situation and vaccination programme shows signs of progress.

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