GBP to USD Exchange Rate Surges as Coronavirus Fears Cause Federal Reserve Rate Cut Bets

February 25, 2020 – Written by Ben Hughes

The US Dollar briefly saw a boost on Monday’s safe haven demand, but today the currency fell back, shedding Monday’s gains and making it easier for the British Pound to US Dollar (GBP/USD) exchange rate to advance. As the Pound lacks much drive, the pair is gaining more on coronavirus concerns and US Dollar weakness than any UK news such as data or Brexit developments.

Sterling’s movement is mixed this week, but GBP/USD is still seeing better performance than it did last week. GBP/USD opened last week at the level of 1.3048 and lost almost a cent to close the week near the level of 1.2957. The pair was able to climb back from the week’s 3 month low of 1.2859.

So far this week, GBP/USD dipped before climbing a little higher. At the time of writing, GBP/USD is trending just below the key level of 1.30 – but investors are hesitant to buy it much higher.

GBP Exchange Rates Benefit from Rival Weakness as they Avoid Coronavirus Fears

Last week saw the Pound tumble on fresh concerns that the UK and EU would not be able to reach a deal on Brexit by the end of the year. This left the Pound weak even though the week’s UK data had beaten expectations.

According to Elsa Lignos, Global Head of FX Strategy at RBC Capital Markets:

‘the two sides are far apart as a starting point and it remains to be seen how much progress they can make in the remaining nine months’

However, even though Brexit uncertainties persist ahead of this year’s anticipated UK-EU negotiations, the Pound saw a strong rise in demand today.

Rather than being driven by data or Brexit news though, the Pound is benefitting from weakness in major rival currencies today.

The US Dollar, for example, has been falling today, among other majors.

Currencies from regions which are feared could see a negative impact from the coronavirus outbreak are weakening today. However, as coronavirus concerns have yet to hit Britain too hard, the Pound has been fairly resilient even amid the market rush into safer assets.

Today’s UK data ultimately had little impact on Sterling. The Pound gained against most majors even as CBI’s February distributive trades data only came in at 1 rather than the expected rise to 4.

USD Exchange Rates Slump on Coronavirus Fears and Poor US Data

The US Dollar started the week out on a positive note, seeing a surge in demand yesterday due to being a safe haven currency.

Over the weekend, it emerged that the coronavirus had unexpectedly spread in Italy. Fears of the virus spreading in Europe made market panic, and hopes for US economic resilience meant the US Dollar was the market’s safe haven of choice.

However, overnight speculation rose that the Federal Reserve has the space to cut US interest rates and limit potential economic damage from the virus if needed.

As a result, Fed rate cut bets rose and the US Dollar has been tumbling today.

On top of Fed rate cut speculation keeping the US Dollar unappealing, the currency has seen further pressure due to this week’s US data being largely underwhelming so far.

Richmond Fed’s manufacturing index was expected to slow from 20 to 13, but instead the figure unexpectedly contracted at -2.

CB’s latest US consumer confidence results also disappointed, slowing to 130.7 rather than the expected 132. Overall, the data combined with concerns that the US economy could be hit by the coronavirus left investors without much reason to buy the US Dollar.

GBP/USD Exchange Rate Forecast: Fed Comments Could Influence US Coronavirus Speculation

The US Dollar was hit by fears that the coronavirus outbreak could pressure the Federal Reserve to take a more dovish stance on US monetary policy. As a result, markets will be keeping an close eye on Fed comments in the coming days.

Amid a lack of notable UK data due for publication for much of the week, the Pound will continue to be driven more by rival currencies unless there are surprising Brexit developments.

As a result, GBP/USD has a decent chance of being influenced by speeches from Fed officials Kaplan and Kashkari tomorrow, if they make any notable comments regarding the coronavirus.

Global developments on the spread of the virus will of course remain influential as well, as the US Dollar’s movement has been largely driven by risk-sentiment this week so far.

However, towards the end of the week some major US data will be published.

The Pound to US Dollar exchange rate could see a big shift in movement if Thursday’s US goods orders or US growth rate stats surprise.

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