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British Pound to US Dollar Exchange Rate Flounders as Markets Digest Political Chaos

Published: 7 Jan at 5 PM Tags: Pound Sterling, Dollar Exchange Rate, Currency Exchange, UK, Exchange Rates, Economy, Pound Dollar Exchange Rate,

Amid the tail-end of a chaotic week for global markets, the British Pound to US Dollar (GBP/USD) exchange rate has steadied. Investors continue to digest the events of the past few days, but the US Dollar may strengthen if upcoming data impresses.

After opening this week at the level of 1.3676, GBP/USD briefly edged higher and touched on a high of 1.3697. This was the best level for GBP/USD in two and a half years, since mid-2018.

Since then the pair has been trending with a downside bias. GBP/USD has been floundering within a relatively tight region today, in the region of 1.3582.

At the beginning of the week, the Pound was knocked down by news that Britain would be put under a third lockdown. This national lockdown, the strictest since March 2020, could last until March.

Sterling has struggled to recover since, as it meant that Britain’s economy would be hit hard by the coronavirus pandemic for at least another few months.

This week’s UK data has done little buoy the Pound either. UK PMIs largely fell short of expectations, indicating that while things were improving, economic activity was not as resilient as hoped in December.

The US Dollar continues to be driven largely by shifts in market demand for safe havens. As the US Dollar is a safe haven currency, it has benefitted for much of the week from coronavirus pandemic fears, as well as US political uncertainty.

US Senate runoff elections in Georgia on Tuesday ended with the Democratic Party securing power in the Senate. This actually weakened safe haven demand amid speculation that the US government could implement more fiscal stimulus soon.

However, Wednesday saw safe haven demand rise slightly once again as white supremacist rioters broke in to the Congress building in the US Capitol.

Though the situation ultimately calmed again, uncertainty lingered on Tuesday. This left the Pound to US Dollar exchange rate struggling for direction.

Going into the end of the week, the Pound will continue to be driven by domestic coronavirus news, amid a lack of upcoming UK data.

The US Dollar is more likely to be driven by data, with key US Non-Farm Payroll stats due for publication during tomorrow’s American session.

If US data beats forecasts, it could boost the US Dollar’s appeal and GBP/USD could slip lower.

On the other hand, if investors become more willing to take risks but US data fails to impress, the Pound would have a much better chance of climbing back towards its best levels.