Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted on Brexit Woes and Negative Rate Talk
The Pound Sterling US Dollar (GBP/USD) exchange rate was left flat this morning, with the pairing trading at around $1.2262.
Sterling remained flat this morning after reports revealed Brexit talks between London and Brussels reached an impasse.
GBP/USD held near Wednesday’s close, with the pairing losing around 7.5% of its value so far this year.
GBP edged lower after Britain told the European Union it still needed to break a fundamental impasse in order to reach a trade deal by December.
The Times newspaper reported that Brexit talks between the UK and EU will resume in person in Brussels next month.
Sterling was left under pressure at its lowest levels in more than three decades as Brexit woes, the possibility of negative interest rates and increasing public debt weigh on the currency.
Yesterday, Bank of England (BoE) Governor, Andrew Bailey said the BoE was correct to consider sending rates into negative territory in order to offer the economy a boost.
However, he did state the bank would need to look carefully at the side effects of taking rates below zero.
In a note to clients, Commerzbank’s head of FX and commodity research, Ulrich Leuchtmann wrote:
‘The question whether the BoE key rate is slightly above or below zero does not really matter.
‘Monetary policy in the UK – just like almost everywhere else in the world – has pretty much reached the end of the line.’
US Dollar (USD) Muted as Markets Fret Over New Wave of US Layoffs
The pairing remained flat on Thursday as traders worried about a new wave of layoffs in the United States as the pain caused by the coronavirus pandemic worsens.
Markets largely expect data this afternoon to reveal the country suffered high levels of job losses, making this the 10th consecutive week of losses.
Job cuts from state and local governments who have had their budgets slashed by the coronavirus pandemic as well as further second-wave layoffs in the private sector have caused the jobless rate to creep steadily higher.
This afternoon, the latest jobless claims report is expected to show the number of people in the country on jobless benefits hitting another record high in mid-May.
Investors are looking to the report to see how quickly the world’s largest economy is likely to rebound after businesses were shuttered in March due to the pandemic.
However, despite non-essential businesses beginning to reopen, unemployment claims have continued to remain at astonishingly high levels.
According to Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania:
‘I am concerned that we are seeing a second round of private sector layoffs that, coupled with a rising number of public sector cut backs is driving up the number of people unemployed.
‘If that is the case, given the pace of reopening, we could be in for an extended period of extraordinary high unemployment. And that means the recovery will be slower and will take a lot longer.’
Pound US Dollar Outlook: BoE and Negative Rates in Focus This Week
Looking ahead, the US Dollar (USD) could edge higher against the Pound (GBP) if this afternoon’s US jobless claims spook investors.
If the number of claims jumps to a record high as expected, risk appetite could slide and send traders flocking to the safety of the ‘Greenback’.
Meanwhile, Sterling could continue to suffer losses as traders continue to worry about the Bank of England (BoE) taking rates into negative territory.
If markets continue to fret over negative rates and Brexit talks with the EU remaining at a standstill, the Pound US Dollar (GBP/USD) exchange rate will slump further.
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