The pound’s performance has been wedded to the progress of post-Brexit trade talks in recent weeks – and like any relationship, there have been ups and downs. Last week was a perfect example of this: on Tuesday, the pound to dollar rate sunk below the 1.33 benchmark, before skyrocketing to a 31-month high just two days later – breaking through the 1.36 barrier for the first time since May 2018. Mounting hopes that a last-minute deal can be struck between the UK and EU fuelled the surge. By the close of play on Friday, however, a more cautious outlook had been painted by officials from both sides, with Boris Johnson saying a no deal scenario was “very likely” – causing the pair to reverse its course and end the week just above the 1.35 level.
As the new week dawned, however, it wasn’t just stalled negotiations and Brexit limbo that were putting pressure on the pound’s relationship with the dollar; news that a growing list of European countries had imposed travel restrictions on the UK in a bid to control a new strain of the coronavirus, caused the pair to tumble to 1.33. Speaking yesterday, a Downing Street spokesperson said: “The prime minister will chair a COBRA meeting tomorrow to discuss the situation regarding international travel, in particular, the steady flow of freight into and out of the UK.”
Dollar Rises as Risk Appetite Falls
On Friday, the dollar managed to reverse the substantial losses it had suffered earlier in the week against the pound. Concerns surrounding the chances of an agreement on US coronavirus aid and a Brexit trade deal deflated investor confidence – fuelling a flight to safety.
As the weekend drew to a close, however, it was revealed that US Congress had finally reached agreement on a $900 billion package – the second-largest economic stimulus in US history, following the $2.3 trillion aid bill in March. The Democratic-led House of Representatives is expected to vote on the package today, followed by the Republican-controlled Senate.
After months of contentious debate, Republican Senate Majority Leader Mitch McConnell celebrated the long-awaited development by telling the Senate: “At long last, we have the bipartisan breakthrough the country has needed”. Despite the agreement, the worsening pandemic and ongoing Brexit trade deadlock sapped risk appetite this morning, causing the safe-haven dollar to advance higher.
With no economic data to report from the UK today, the Chicago Fed National Activity Index – a monthly gauge of overall economic activity and related inflationary pressure – is the only release of note for the pound to dollar rate. Get in touch to discuss the pound to dollar rate in the short term.