GBP to USD Forecast: Pound Rebounds After PM Announces Lockdown

Pound to Dollar Rate Recovers Losses

Fed takes emergency action

After an erratic start to the week, the pound to US dollar rate was given a nudge higher by the US Federal Reserve’s surprise decision to implement an unlimited expansion of bond purchasing programmes – known as “quantitative easing”. The unprecedented move, which is designed to help the economy weather the coronavirus meltdown, comes as plans for a $1.8 trillion bailout of business and consumers stalled in Congress. Fed leaders said: “Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate”.

Despite a lack of fiscal support from the US government so far, the Fed’s latest action could help to shore up businesses that are being hamstrung by ongoing economic disruptions. While this will help to calm market anxiety in the short-term, once the initial impact of the central banks’ surprise action fades, lingering fears over the health of the global economy could create a fresh wave of risk aversion for the dollar to ride.

The Chicago Fed national activity Index – a gauge of domestic economic activity – ticked up from -0.33 in January to 0.16 in February. Under normal circumstances this encouraging reading would be cause for optimism; however, it represents a period before the coronavirus outbreak began weighing on the US economy.

Britain goes into lockdown

Mounting speculation that Boris Johnson was preparing for a forced lockdown appeared to be shackling the GBP vs USD dollar rate yesterday afternoon after it briefly dropped below the 1.15 benchmark. However, the pair rebounded following prime minister’s televised statement yesterday evening, when he ordered people not to leave their homes other than for a very limited list of exceptional purposes.

Looking ahead

Today sees the release of Markit manufacturing and services PMIs for March from both the UK and US. The UK’s powerhouse services sector – which accounts for more than three-quarters of the nation’s GDP – is forecast to slip below the expansion benchmark, potentially raising the odds of a recession. While any evidence of a loss of momentum within the US manufacturing sector is likely to weigh heavily on the dollar.

A raft of UK data tomorrow could paint an inaccurate economic picture, because – for the most part – the readings cover February before the outbreak developed into the crippling crisis being experienced today.

If you’d like to discuss these factors and how they could impact an upcoming currency transfer, feel free to get in touch with me, James Lovick, using the form below.