The Pound to US Dollar (GBP/USD) exchange rate fell by over -1% after the US Federal Reserve launched an ‘unlimited’ quantitative easing program to boost the US economy. The pairing is currently fluctuating around $1.146.
Chris Rupkey, the Chief Financial Economist at MUFG Union Bank, commented: “Fed policy is shifting into a higher gear to try to help support the economy which looks like it is in freefall at the moment.”
“The central bank is shifting from being not just the lender of last resort, but now it is the buyer of last resort. Don’t ask how much they will buy, this is truly QE infinity.”
With few other countries going as far as the Federal Reserve, the market appeal of the US Dollar is set to increase in the next few days as global markets continue to grapple with the ongoing coronavirus crisis.
The US Dollar (USD) also continues to benefit from its safe-haven status as investors continue to take refuge in the ‘Greenback’.
The Pound (GBP) has come under mounting pressure after Prime Minister Boris Johnson is increasingly pressurised to initiate an Italy-style lockdown after the British public appeared to ignore social-distancing measures over the weekend.
The lockdown would come as a severe shock to the British economy and would weaken the GBP/USD exchange rate. As a result, Sterling investors feeling jittery ahead of Downing Street’s address later on today.
Yael Selfin, KPMG UK’s chief economist, was downcast in her analysis, saying: “[T]here will also be a very substantial negative impact on the global economy and the UK’s economic performance this year and potentially next. Until we know how and when the Covid-19 outbreak will end, the scale of the negative economic impact will be difficult to quantify.”
Looking ahead, the GBP/USD exchange rate could fall further tomorrow with the UK Markit Services and Manufacturing PMI expected to sink deep into contraction territory this month.
Meanwhile, the US Dollar will continue to maintain its safe-haven appeal as the global economy continues to teeter towards a recession.