Pound US Dollar (GBP/USD) Exchange Rate Plummets as Spooked Investors Rush for Dollars

March 18, 2020 – Written by John Cameron

Pound Sterling US Dollar (GBP/USD) Exchange Rate Falls as Investors Rush to Safe-Havens

The Pound Sterling US Dollar (GBP/USD) exchange rate slumped this morning by around -0.8% and is currently trading at around $ 1.2019.

The Pound continued to suffer losses against the Dollar today, after Tuesday saw the pairing slump to the lowest level since early September.

Investors continued to flock to the safe-haven US Dollar as coronavirus fears left markets frazzled despite huge injections of liquidity by central banks across the world.

The ‘Greenback’ has benefitted as markets suffered this month as investors liquidated nearly everything for cash, boosting the value of the American currency.

According to the Bank of Singapore’s currency analyst, Moh Siong Sim:

‘Funding strains are still there, and I think that is what’s spooking the market still.’

Risk appetite amongst investors has vanished as the number of Covid-19 cases approaches 200,000 and the death toll rose beyond 8,000.

Traders have been watching volatility in the US Treasury market, and the yield on benchmark US 10 year Treasuries jumped 34 basis points. This was the largest rise in a single day since 2004.

Pound (GBP) Slumps as Sunak Announces £330 Billion Lifeline

Sterling remained under pressure today, as while the crisis has been met with fiscal and monetary policy measures, there are only slight signs this is working.

Commenting on this, head of research at brokerage Pepperstone, Chris Weston said:

‘The newsflow is about as fluid as we have seen. It mirrors that of the [2008] financial crisis if not worse … it’s very difficult to deal with this and I think FX traders don’t really know where to look at the moment.’

Meanwhile, the British government announced it would launch a £330 billion lifeline of loan guarantees along with £20 billion in tax cuts, grants and help for businesses.

UK Chancellor, Rishi Sunak promised to do ‘whatever it takes’ to help businesses and described the package as unprecedented.

Although, GBP remained under pressure as many believe further measures will be needed. According to Allan Monks, JP Morgan economist, the measures for this year were ‘likely to look small compared to the economic shock underway’.

Markets are now waiting to see if the Bank of England (BoE) will cut rates again and signal it is going to expand its £435 billion government bond buying programme.

Pound US Dollar Outlook: Will GBP/USD Hit Fresh Lows?

Looking ahead to this afternoon, the US Dollar (USD) edge up against the Pound (GBP) following the release of home building data.

If the number of building permits granted in February rise higher than expected it could provide the ‘Greenback’ with a slight upswing of support.

However, coronavirus is going to remain the main catalyst for movement in the pairing as increased fears will continue to send investors towards the safe-haven US Dollar.

If market sentiment continues to dwindle and traders rush towards safe-haven currencies, the Pound US Dollar (GBP/USD) exchange rate will slump further.

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TAGS: Pound Dollar Forecasts