Pound to Dollar Forecast: GBP to USD Rate Drops Below 1.21 Benchmark for First Time in 6 Months

GBP USD Exchange Rate: The Week Ahead November 08th

Chancellor Makes £330bn of Business Loans Available

The pound to US dollar rate fell below the 1.21 benchmark yesterday for the first time since September, as the UK government ramped up its efforts to contain the coronavirus outbreak. Prime Minister Boris Johnson used his first daily update on Monday to urge Britons to take unprecedented peacetime measures, such as avoiding pubs, working from home and stopping non-essential travel. Social distancing is a hot topic, and it appears that investors are applying a similar principle to the pound, as they assess the likely impact of the pandemic on the UK economy.

The pair crept back up to where it came from yesterday afternoon, after the chancellor guaranteed state-backed loans of at least £330bn for businesses to shore-up the UK economy.

The economy was dealt a further blow by the unemployment rate, which rose to 3.9% – its highest level since August 2019 – in the three months to January. The surge in the number of people out of work suggests the labour market contracted before Covid-19 struck. There was some good news for people already in work, with wage growth accelerating to 3.1% from 2.9% in December. However, the figure paints a rosy picture of a period before the health crisis became a stark reality.

Investors Favour Dollar Over Riskier Assets

Coronavirus concerns have dented market confidence. Even coordinated moves from central banks, including another emergency rate cut from the US Federal Reserve, haven’t been able to settle nerves. This climate of fear has sent investors retreating towards safe-haven bets like the dollar, driving up its demand and weighing on the GBP vs USD rate.

The economic impact of the coronavirus outbreak wasn’t evident in last month’s US industrial production numbers. Output increased in February for the first time since November, as cold weather kept utilities active and a rise in auto production pushed manufacturing production higher.

American industry – and the dollar – is bracing for the impact of the coronavirus, which is bringing ordinary economic life to a standstill. On Monday, the Federal Reserve Bank of New York reported that manufacturing activity in New York state slumped this month to the lowest level since 2009.

Consumer spending – the main driver of the US economy – began to decline even before the coronavirus began infecting the economy. The value of overall US retail sales decreased 0.5% in February, after a 0.6% gain in January – the most they have fallen in a year.

Looking Ahead

Expectations are rising that the Bank of England will introduce a fresh batch of quantitative easing measures to prop up the UK financial system. The pound fell substantially after the central bank first went down the money printing path in 2008.

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. I’ll be happy to respond personally and discuss your enquiry.