Recession fears and panic selling are dragging the US dollar sharply lower versus the Pound. Pound US Dollar exchange rate rallied to high of US$1.32 before slipping lower to US$1.31 where it is trading at 14:00 UTC in a very volatile session.
GBP/US has traded a range of US$1.3035 – US$1.3200, as stock market turmoil sends the US dollar sharply lower.
US dollar Drops Amid Heavy Stock Market Selling
The US dollar plunged at the start of the week and continued to trade lower as the US stock markets opened. US stocks plunged over 7% on the open in a strong risk off atmosphere as investors attempt to gauge the impact of an oil price war and the escalating coronavirus spread on the global economy. The uncertainty surrounding two huge events has resulted in investors selling out of riskier stocks and into safe haven US bonds.
As a result, bond yields have dropped to record lows hurting the appeal of the US dollar. Investors starting to view current events as a catalyst for a global recession. After the Fed cut interest rates by 50 basis points last week, market participants are expecting the central bank to take further action, with deeper rate cuts which is pummelling demand for the greenback.
Pound Boosted By BoE Calm Approach
Whilst the Fed is expected make a deeper cut to interest rates, the Bank of England has adopted a much calmer approach so far to the coronavirus outbreak. Both the outgoing BoE governor, Mark Carney, and the incoming governor Andrew Bailey have suggested that they are in no rush to take action against coronavirus and its potential impact on the economy.
However, with the UK stock market in free-fall on Monday, it will be interesting to see whether the BoE stands its ground. The UK central bank is less dependent on the market than the Federal Reserve, but still it will be hard for policy makers to ignore the huge sell off on the FTSE. At the time of writing the UK stock market is down 7%.
Pound investors will continue digesting coronavirus headlines and look ahead to the UK Budget on Wednesday. Investors will be hoping for stimulus package from the Chancellor to shore up the UK economy.
