Pound US Dollar (GBP/USD) Exchange Rate Rangebound as Covid-19 Fears Dent US Consumer Morale

August 16, 2021 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Rangebound as Covid-19 Fears Dent US Consumer Morale

GBP/USD Exchange Rate Steady, US Consumer Morale Deteriorates

The Pound US Dollar (GBP/USD) exchange rate held steady today following the slide in US Michigan consumer confidence on Friday, which dropped considerably below expectations. The pairing is currently trading around $1.38.

Analysts at Bloomberg explained:

‘US consumer sentiment fell in early August to the lowest level in nearly a decade as Americans grew more concerned about the economy’s prospects, inflation and the recent surge in coronavirus cases.’

The latest index fell from 81.2 to 70.2 in August – its worst level since December 2011 – leaving many ‘Greenback’ traders concerned about the state of the economy and its recovery going forward.

However, China’s failing retail sales and industrial production figures for July have sparked demand for the safe-haven US Dollar today.

Louis Kuijs, head of Asia economics at Oxford Economics, explains:

‘Given China's 'zero tolerance' approach to Covid, future outbreaks will continue to pose significant risk to the outlook, even though around 60% of the population is now vaccinated.’

Added to this, growing tensions over Afghanistan after the US announced that it would withdraw its military efforts in the region has also contributed to risk-off market mood.

Pound (GBP) Exchange Rate Steady as UK Covid-19 Concerns Weigh on Sterling

The Pound (GBP) held steady today due to a lack of any influential UK economic data being released until Tuesday.

As a result, the GBP/USD exchange rate has been largely driven by rising Covid-19 cases and last week’s mixed economic data.

With signs of daily infection rates rising, investors are becoming more cautious about the outlook for the UK economy which, which has dented demand for Sterling.

Fears of autumn cases seeing 1,000 cases a day has also dragged down confidence in the UK economy going forward.

However, UK unemployment is not expected to fall significantly once the furlough scheme tapers off next month.

Jonathan Boys, labour market economist at CIPD, said:

‘Employers are very optimistic, indicating strong recruitment intentions, and redundancy expectations appear much lower than originally predicted during the pandemic.’

Consequently, Pound traders have become more optimistic ahead of tomorrow’s release of the latest unemployment data.

GBP/USD Exchange Rate Forecast: UK ILO Unemployment Data in Focus

Pound (GBP) investors will be looking ahead to tomorrow’s release of the latest UK ILO unemployment rate data for June.

Any improvement in the nation’s labour sector would see the GBP/USD exchange rate head higher.

UK Covid-19 developments will also be in focus. If daily cases of the virus show any signs of falling, then the pairing would rise.

US Dollar (USD) traders will be awaiting tomorrow’s release of the latest retail sales data for July. Could an uptick in retail sales drive-up the USD/GBP exchange rate.

Tomorrow will also see the Federal Reserve’s Governor, Jerome Powell, deliver a speech. If he is notably upbeat about the US economy we could see the ‘Greenback’ receive a boost.

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TAGS: American Dollar Forecasts Pound Dollar Forecasts