GBP to USD Exchange Rate Plummets as Safe Haven Demand Leads to USD Surge

February 24, 2020 – Written by James Fuller

Amid a lack of notable Brexit developments in recent sessions, the British Pound to US Dollar (GBP/USD) exchange rate has been more easily driven by a strong US Dollar today. Market concerns over the coronavirus returned in full force today, after weekend news showed that the virus had seen a worse spread through Italy than expected. While last week’s UK data was strong, investors had little reason to buy the Pound today.

Volatility in both the Pound and US Dollar has left GBP/USD highly jittery in recent weeks. After opening last week at the level of 1.3048, GBP/USD spent most of the week tumbling as the Pound fell. GBP/USD briefly touched on a low of 1.2859 near the end of the week – the pair’s worst level in three months – before recovering and closing the week closer to the level of 1.2957.

This week so far, GBP/USD has already been trending lower as the US Dollar is boosted by safe haven demand. At the time of writing, GBP/USD is trending close to the level of 1.2915.

GBP Exchange Rates under Pressure on Global Developments despite Strong UK Data

Earlier in the month, the Pound saw a surge in demand as investors reacted to slews of better than expected UK data, as well as hopes for a more bullish UK budget.

However, even as UK data continues to impress and hopes of a UK economic rebound persist, Brexit uncertainties flared up once again last week.

The EU continues to indicate that it will not give Britain’s financial sector any special treatment in a post-Brexit deal. This left Pound investors anxious about the future of UK-EU relations once again.

If the UK and EU are unable to reach an agreement on the future of relations by the end of this year, it could lead to a cliff-edge Brexit scenario that could cause a significant shock for Britain’s economic outlook.

Amid the higher market focus on coronavirus developments and jitters today, the Pound is limp. Analysts predict that investors won’t have much reason to move on the British currency in the coming sessions. According to analysts at ING:

‘A quiet week in terms of data releases is going to leave space to the other two key drivers of GBP: UK-EU trade negotiations and hints about the content of the upcoming UK budget,” ING analysts said in a research note.

We suspect both will hardly come to the support of the pound, as the negotiations may enter an even more confrontational phase and the government is unlikely to endorse market’s high fiscal hopes.’

USD Exchange Rates Surge on Market’s Safe Haven Rush

Over the weekend, it was reported that the coronavirus Covid-19 which had broken out in Wuhan, China, had seen an unexpectedly large spread in Italy.

The surge of cases reported outside of China has led to lockdowns in Italy, and fresh market concerns that the worst of the outbreak could still be ahead.

Amid rising fears over the virus and its potential impact on global economic growth, markets have shown increasing demand for safe haven currencies.

Expectations that the US economy will be mostly resilient in the face of the coronavirus outbreak are leaving the US Dollar as the market’s most appealing safe haven currency this week so far.

Investors are piling into the US Dollar on safe haven demand, even as recent US data has disappointed investors.

Friday’s US PMI projections from Markit fell short of expectations, as did today’s Chicago Fed national activity index stats from January.

GBP/USD Exchange Rate Forecast: Safe Haven Demand to Drive Currency Movement in Coming Sessions

Britain’s economic calendar will be quiet this week, and not much key US data is due for publication until Thursday.

As a result, the Pound to US Dollar exchange rate is most likely to be driven by political and global factors over the next couple of days.

There haven’t been any surprising developments in Brexit in recent sessions. However, if there are any fresh shifts in UK-EU relations or comments on negotiations from officials, the Pound is likely to react.

If there are no Brexit surprises though, GBP/USD is more likely to be influenced by the US Dollar’s strength instead.

If market concerns over the spreading coronavirus worsen, safe haven demand is only likely to intensify and the US Dollar would strengthen.

On the other hand, if there are fresh hopes of the outbreak being kept under control, the Pound to US Dollar exchange rate is more likely to recover.

International Money Transfer? Ask our resident FX expert a money transfer question or try John’s new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts