The pound snapped a four-day losing streak versus the US dollar on Tuesday, in a notably volatile session. The Pound (GBP) US dollar (USD) exchange rate closed 0.4% higher at US$1.2809 after the Fed made an emergency 50 basis points rate cut.
The pair is holding steady in early trade on Wednesday. At 07:30 UTC, GBP/USD is trading slightly higher at US$1.2810.
GBP Drops On Coronavirus Escalation
The pound has been under pressure across recent sessions as no trade deal Brexit concerns combined with rising coronavirus fears drag on sentiment. The Bank of England earlier this week pledged to take whatever steps necessary to support the UK economy in the face of coronavirus risks.
The National Health Service (NHS) has declared coronavirus a level 4 risk, the highest degree of emergency. 12 more cases have been confirmed in Britain and accountancy firm Deloitte locked down the London office after a worker tested positive. The spread of the virus and closing of businesses is almost guaranteed. Investors will be watching closely to see if the BoE follows in the steps of the Fed by cutting rates.
UK construction data was better than forecast on Tuesday. The construction pmi revealed that construction activity increased at the fastest pace in a year in February. Today investors will look ahead to service sector output numbers. Analysts are forecasting a very slight slowdown to 53.2, down from 53.3 in January, whereby 50 separates expansion from contraction.
USD Rebounds Post Rate Cut
A surprise, emergency 50 basis point rate cut by the Federal Reserve on Tuesday sent the US dollar lower. The move came following a G7 finance ministers meeting earlier in the session. The initial reaction saw the move has sparking more anxiety rather than the calm that Jerome Powell was looking for. US stocks markets shed over 2%. However, today risk sentiment is resetting across financial markets and the dollar is pushing higher.
Coronavirus will remain front and central for dollar investors. Attention is also expected to move towards the ADP private payroll data and ISM non-manufacturing data released ahead of Friday’s all-important non-farm payroll.