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GBP/USD Forecast: Pound to US Dollar Exchange Rate Advances Steadily as USD Tumbles

April 14, 2021 - Written by Ben Hughes

Optimism about Britain’s coronavirus recovery outlook is keeping the British Pound to US Dollar (GBP/USD) exchange rate trending with an upside bias today, as investors sell the US Dollar again. The US Dollar’s strength from earlier in the week has already faded as the latest US inflation data has done little to support the hawkish bets of markets, and investors are now awaiting coronavirus news and more US data.

Last week saw GBP/USD briefly surge to its best levels in a fortnight, but ultimately slide from 1.3830 to 1.3706 as the US Dollar benefitted from Sterling’s own broad losses.

However, since touching a monthly low of 1.3673 at the beginning of this week, GBP/USD has been trending with an upside bias again. The Pound’s appeal has been limited, but it is climbing against a weaker US Dollar.

At the time of writing on Wednesday, GBP/USD is trending in the region of 1.3760. It is struggling to this today’s highs as Sterling demand is also limited.

Pound (GBP) Exchange Rates Struggle to Capitalise on Rival Weakness

Last week saw investors sell the Pound en masse in a bout of profit taking from its best levels. However, the movement was sharp and short, and this week so far investors have been hesitant to sell Sterling much further.

This week’s stronger than expected UK economic data from February kept markets optimistic about the potential for Britain’s economic recovery from the coronavirus pandemic.

However, yesterday’s news that Bank of England (BoE) Chief Economist Andy Haldane would step down in the summer did come as a slight shock to Sterling.

Investors briefly sold the Pound on concerns that Haldane’s successor could be comparatively dovish.

While the news did weigh on Sterling slightly and dampen the Pound’s potential for gains, it ultimately had little impact on the Pound’s outlook. According to Petr Krpata, Chief EMEA FX and IR Strategist at ING:

‘Although a big hawk, his departure shouldn’t alter the pound’s prospects for the coming months as no imminent BoE tightening was on the table (like for the Fed, it is a story for 2023),’

Today’s UK productivity data was a little better than forecast which also helped the Pound to avoid more losses. The Office for National Statistics (ONS) said:

‘Although there was substantial volatility during the year, this contrasts with a slow and steady decline in productivity during the 2008-09 economic downturn.’

US Dollar (USD) Exchange Rates Tumble as US Inflation Data Has No Impact on Outlook

Speculation that US price pressures were rising and could make the Federal Reserve tighten US monetary policy had been among the primary causes of US Dollar strength in recent weeks.

However, after dovish signals from the Federal Reserve last week and yesterday’s US inflation rate report, investors have seemingly given up on Fed rate hike bets for the time being.

Yesterday’s US inflation rate did beat expectations, but it did not signal the speculated surge in price pressures. As a result, investors sold the US Dollar last night while Fed rate hike bets faded.

According to Strategists at MUFG, sustained US Dollar gains are unlikely to continue due to this dovishness in the Fed outlook:

‘The Fed’s continued commitment to loose monetary policy remains a key assumption behind our view that it is still too premature to expect a sustained US Dollar rally at the current juncture,’

GBP/USD Exchange Rate Forecast: Investors Await Key US Data

The Pound outlook remains fairly optimistic due to coronavirus recovery hopes, and the US Dollar outlook has been dampened by fresh doubts that the Federal Reserve will become more hawkish any time soon.

As a result, the Pound to US Dollar exchange rate outlook remains fairly high for now.

There is potential for the US Dollar to strengthen in the coming sessions if upcoming US data continues to impress however.

Tomorrow will see the publication of latest US retail sales results, which could be highly influential and indicate how US consumer activity is holding up amid the pandemic.

There will also be speeches from Fed officials in the coming days.

As for the Pound, amid a lack of notable UK data due until next week’s UK job stats the Pound to US Dollar exchange rate could also be driven by any potential UK coronavirus developments.
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