The pound to US dollar has seen excessive volatility at the hands of the Coronavirus, as financial markets grapple with the sudden shifts in the outlook for the global economy and a series of groundbreaking policy decisions by central bank.
The US Federal Reserve breathed more life into the US economy by announcing ‘unlimited QE’ yesterday, triggering some strong selling and then buying moves. It is as if on one hand the FX markets greatly back the ‘whatever it takes’ approach by central bankers, but at the same time are shocked and worried that it is necessary.
This was reflected by the GBPUSD interbank rate’s rise yesterday to 1.17 on the QE announcement, before the US dollar fought back in value hitting 1.1455. Today, the pound to US Dollar rate is trading at almost 1.1756 at midday, as the greenback comes back under pressure.
Quantitative Easing is the buying up of assets by a central bank to help encourage liquidity in the financial system. The US has also cut their base interest rate to 0-0.25%, and the Bank of England have cut to 0.1% in March too. Unprecedented measures for unprecedented times!
Will GBPUSD now start to rise back higher?
With the UK now on lockdown it will be interesting to see how financial markets respond. It can be argued that by the UK taking a more controlled approach, whilst Donald Trump is keen to ride roughshod over the concerns, the UK might be able to shake this off sooner. Much of the evidence points to strong controls on the movement of people assisting countries with less deaths.
However, what about the economic impact? Donald Trump’s approach to raise the importance of the economy is at loggerheads with some, only time will tell what is the best way forward. What can be said is that with the crisis still in its infancy in the western world, there appear to be many more difficult situations ahead for the public, governments and the currency markets to contend with.
Pound to dollar rate are interesting because of the US dollar’s status as a safe-haven currency. This means in times of uncertainty; it can rise in value as it has done lately. This performance however can be at odds with the tendency for a currency to rise or fall on economic concerns, as investors try to make sense of where events are headed next.
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