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Sterling Rebounds as Investors Move Away From Safe-Haven US Dollar

Published: 25 Feb at 5 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China, Germany, Italy,

Pound Sterling (GBP) Rebounds on Slight Boost in Risk Appetite

The Pound (GBP) rebounded on Tuesday after markets found stability despite worries about Covid-19. Investors were able to move away from the safe-haven USD which had previously sent the British currency lower.

The slight increase in risk appetite was the main driver of Sterling today, although markets awaited for developments in trade relations between the UK and European Union. UK-EU trade talks are set to begin next week in order for a post-Brexit trade deal to be agreed by the end of the year.

Thanks to a light data calendar, the focus will remain on trade negotiations, and if reports continue to reveal the UK and EU are far apart on key issues, GBP will slump.

Pound Euro (GBP/EUR) Exchange Rate Jumps as German Economy Stagnates

The Euro (EUR) slumped against the Pound (GBP) after data showed the German economy stagnated in the final three months of 2019.

Single currency sentiment remained under pressure as shrinking exports weighed on economic activity and the data confirmed that the bloc’s largest economy was struggling before the outbreak of coronavirus in China. Added to this, Capital Economics analyst, Andrew Kenningham argued that the economy would continue to stagnate in the first six months of 2020.

Meanwhile, the Euro could slump following a speech from the European Central Bank’s (ECB) President Christine Lagarde. If the bank’s chief focuses on monetary policy, speaking about the risks of Covid-19 and the slowdown of the German economy, the single currency will slide.

Pound US Dollar (GBP/USD) Exchange Rate Rises on Increased Fed Rate Cut Risk

The Pound US Dollar (GBP/USD) exchange rate rose on Tuesday afternoon as markets priced in a chance of a Federal Reserve rate cut this year.

Traders are now expecting an interest rate cut from the Fed as this would relieve any pressure put on the US economy caused by the Covid-19 outbreak in China. According to currency analyst at MUFG, Lee Hardman. The potential dovish shift from the bank will cause ‘some downside risk for the US Dollar’.

Looking ahead, it is unlikely the Dollar will give up much of its recent gains, unless there is good news about the coronavirus which would spark an upswing in risk appetite.

Pound Canadian Dollar (GBP/CAD) Exchange Rate Rallies as Oil Prices Fall

The Pound (GBP) jumped by around 0.7% against the Canadian Dollar (CAD) after oil prices fell for the third consecutive day.

Concerns about the spread of coronavirus and the impact this would have on oil demand offset output cuts from OPEC and Libyan supply losses, sending the oil-sensitive ‘Loonie’ lower.

Looking to Wednesday, if oil prices slump for a fourth day on Covid-19 fears, the Canadian Dollar is likely to slump further against the Pound.

Pound Australian Dollar (GBP/AUD) Exchange Rate Rises as Countries to Prepare for Covid-19 ‘Knocking at the Door’

The Pound Australian Dollar (GBP/AUD) exchange rate rallied this afternoon, as World Health Organisation (WHO) spokesman Christian Lindmeier said that countries need to be prepared for the coronavirus ‘literally knocking at the door’.

Earlier during Tuesday’s session, the ‘Aussie’ was able to bounce back from an earlier 11 year low as the virus infection rate dipped and rising expectations of a US Federal Reserve rate cut.

Looking ahead, the ‘Aussie’ could suffer further losses following the release of Australian construction data. If Q4 construction work done slumps further than expected, AUD will extend today’s losses.

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Rallies as Investors Fear Virus is Developing into a Pandemic

The New Zealand Dollar (NZD) slumped against the Pound (GBP) on Tuesday afternoon as the number of Covid-19 cases increased in South Korea, Italy, and Iran.

The jump in cases in Iran which has resulted in the highest number of deaths outside China has caused health experts to worry the virus is developing into a pandemic. Unlike in Italy, officials in Iran are refusing to impose quarantines in areas affected by the outbreak, stating they are old fashioned and they do not believe in them, weighing on risk appetite.

Looking ahead, if the spread of the virus continues to worry investors, and the risk of it being classed as a pandemic increases, the risk-sensitive ‘Kiwi’ will slide.

As of Tuesday, 25th February 2020, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1952, GBP USD exchange rate was 1.3003, GBP AUD exchange rate was 1.9691, GBP NZD exchange rate was 2.0574, GBP CAD exchange rate was 1.7273, and GBP CNY exchange rate was 9.1507.
Dominic Lee About Author: (474 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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