Pound to US dollar exchange rate (GBP/USD): USD unlikely to benefit in current risk-off conditions
- Written by: Gary Howes
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The British pound to US dollar exchange rate has edged higher as the USD comes under pressure in the current negative market conditions.
At mid-morning in London the pound to US dollar exchange rate (GBP to USD) is trading 0.23 pct higher on a day-to-day basis at 1.6520.
The pound dollar exchange rate remained in the tight range of 1.6475/1.6517 in Asia, after aggressively erasing gains from the fresh high of 1.6668 on Friday after Carney said that such strength in GBP should weigh on exports.
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The USD moved higher against a lot of currencies on Friday, but was little changed against the EUR and weaker against the JPY and CHF, underlining the dominance of risk themes in Friday’s trading.
"The USD is reaching strong support areas against the EUR and CHF, and we don’t see a strong fundamental case for a weaker USD from here, so we suspect that the USD will perform reasonably well today," says an exchange rate forecast note issued by Lloyds Bank Research.
However, Lloyds do point out that activity on Friday underlined that the USD is no longer necessarily preferred to the EUR and CHF in risk negative conditions.
This is interesting as US dollar exchange rates have tended to benefit when markets sold-off in recent years.
"The corollary of this should be that any recovery in risk appetite should favour the USD, along with other currencies where growth is expected to outperform," say Lloyds.
Asian markets experience toughest conditions since mid-2013
With broader market sentiment playing an increasingly important role in currency movements it will be important to keep an eye on the performance of equities.
Driving European shares lower on Monday is a decline in Asian equity benchmarks which encountered one of the toughest sessions last night since June.
Investors suffered a failure of confidence in response to losses and elevated volatility from emerging markets-linked instruments.
The CBOE emerging markets ETF VIX jumped 40 per cent as dealers scrambled for protection from derivatives.
David White at Spreadex says:
"And the fear hasn’t been isolated. European and US benchmarks have suffered their worst daily return last week for over 3 months, too – volatility no less expensive. We’re calling the FTSE 100 down some 40 points from Friday’s close."
Elsewhere, the market will turn its attention towards German business climate data out later this morning looking for direction into the afternoon.
Then, at 15.00 GMT, the US will release new home sales, which are forecast to fall marginally from the previous number.
