Pound to Dollar Rate Recovers From 35-Year Lows

Pound to US Dollar Pulls Back as Market Bulls Pause

Bank of England Slash Interest Rates to Record-Low

After seven years serving as the Governor of the Bank of England (BoE), Mark Carney was replaced in the hot seat by Andrew Bailey on Monday. He walked into an economic crisis and was greeted by mounting speculation that he would slash the interest rates to a record low to ease pressure on the economy created by the coronavirus pandemic. The pound to US dollar rate soon sunk to a six-month low, after Boris Johnson used his first daily update to issue more draconian advice to the public: avoid pubs, work from home and abandon travel plans.

The pair dropped to a fresh low on Tuesday, before finding some support in chancellor, Rishi Sunak’s pledge to provide state-backed loans of at least £330bn for businesses. Mr Sunak’s plans to shore up the economy appeared timely after it was revealed that the unemployment rate rose to its highest level since August 2019 in the three months to January. This downturn represents a period before Covid-19 became a stark reality, raising fears that the reading is set to deteriorate rapidly in the coming months.

By Wednesday, the GBP vs USD rate had plummeted to its lowest level in 35 years following its seventh straight day of declines. The worst was yet to come for the pair, which dipped below the 1.15 benchmark for the first time since 1985 on Thursday. The pound was feeling the weight of the BoE’s monetary policy measures and growing demand in the safe-haven dollar, forcing the rate lower.

On Thursday, the BoE reacted to mounting market stress by adding an emergency £200bn to its quantitative easing programme. The central bank also cut interest rates to their lowest level in its 325-year history, to combat the intensifying economic crisis. The pound v dollar rate took comfort in both announcements, causing it to rebound back above the 1.17 benchmark.

Risk-off Mood Sends Dollar Higher

The dollar’s brisk march upwards stumbled slightly as the week got underway after the US Federal Reserve announced that it was cutting its benchmark interest rate to near zero last Sunday. It wasn’t long before dollar demand hotted up again, however, thanks to the insulation provided by its safe-haven status in times of global economic crisis.

Retail sales figures released on Tuesday revealed that consumer spending – the main driver of the US economy – began to wane even before the coronavirus began infecting the economy. American industry – and the dollar – is gearing up for the full economic impact of the outbreak.

The risk-off mood in markets that is being perpetuated by coronavirus concerns enabled the dollar to shrug off the disappointing Philadelphia Fed manufacturing index for March on Thursday. The survey showed that sentiment plunged to its lowest level in the region since June 2012, due to the impact of the pandemic.

Dollar demand eased on Friday after Senate Republicans unveiled a $1 trillion economic stimulus package to address the coronavirus fallout in the US and central banks around the world stepped up their response.

Looking Ahead

Markit manufacturing and services PMIs for March are released in the UK and US on Tuesday. They are expected to provide further evidence of the economic damage the coronavirus is causing on both sides of the Atlantic.

The BoE’s emergency meeting on Thursday – when it slashed the cost of borrowing – came less than a week before its next scheduled interest rate announcement this Thursday.

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