GBP/USD: Pound Firms Targeting $1.28

The rising prospect of an interest rate cut weighed on both the pound and the US dollar in the previous session. The pound to US dollar exchange rate dipped a more conservative 0.4% hitting a low of US$1.2742 in the previous session, before closing at US$1.2767.

As of 07:30 UTC, GBP/USD is pushing higher towards US$1.28.

Coronavirus, Construction PMI & Brexit To Drive Pound

The pound is bouncing off a 5-month low in early trade on Tuesday after coming under pressure in the previous session. The pound sold off versus its major peers after the Bank of England joined the Federal Reserve saying that it will take all necessary steps to protect financial stability. The intervention by the Federal Reserve, BoE and the Bank of Japan comes following a week of turmoil in the financial markets, which saw more that £200 billion wiped off the value of the UK’ leasing share index over fears of the impact of coronavirus on the economy.

The BoE comments raised the prospect of monetary easing by the BoE. The prospect of lower interest rates or additional bond buying to help ease financial conditions dragged on sterling.

Today is investors will continue digesting coronavirus headlines with a G7 conference call expected on coronavirus response. Attention will also turn to the UK construction PMI and the second day of EUR – UK trade negotiations.

Quiet US Calendar Leaves Focus On Fed

The dollar was out of favour in the previous session and demand for the greenback remains lackluster in early trade on Tuesday. The dollar has been broadly out of favour versus its major peers since Federal Reserve Chair Jerome Powell hinted that the Federal Reserve could cut rates in a bid to counter the negative impact of coronavirus on the financial system, potentially as soon as the March monetary policy meeting.

US manufacturing activity grew at the coolest pace in six months in February, amid supply chain disruption arising from the coronavirus outbreak. Today the US economic calendar is quiet. Investors will look ahead to tomorrow’s ISM non-manufacturing PMI and the ADP private payrolls report ahead of Friday’s non-farm payroll.

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