The Pound fell steeply versus a much stronger US Dollar on Tuesday. The Pound versus US Dollar exchange rate plunged 1.8%, snapping a 5-day winning streak. The selloff dragged the pound through $1.300 and below $1.29.
US stimulus expectations and improved sentiment helped lift the US Dollar on Tuesday, whilst a Bank of England rate cut is dragging sterling lower on Wednesday. Pound investors are also looking ahead to the UK Chancellor’s Budget to see what is in store.
At 07:00 UTC, GBP/USD is trading -0.25% at US$1.2880.
Coronavirus Budget
The Pound has dropped in early trade after a 50 basis point rate cut from the BoE to shore up the economy as coronavirus risks escalate.
Pound investors are looking cautiously ahead to the Chancellor’s Budget. This will be Rishi Sunak’s first Budget after taking on the position of Chancellor just a month ago. Within that one-month conditions have changed dramatically.
The Budget is expected to be dominated by money for the National Health service and for businesses to help them cope with coronavirus. The Chancellor is expected to be generous in his fight to contain the economic impact of the killer bug. Investors will be looking for signs that the Government is prepared to spend hard to support the UK economy through what is expected to be a very tough but temporary hit to the economy. Insufficient Government support could raise fears of the coronavirus impact turning into a longer term ongoing hit to the UK economy. In this scenario the pound could fall.
Still No Details On US Stimulus
The US dollar rebounded versus its major peers on Tuesday amid expectation of dramatic and major fiscal support package from President Trump. However, there was some confusion across the previous session as to whether the stimulus package was coming or not. The lack of clarity on any package is weighing on the US Dollar on Wednesday.
Today sees the release of US inflation data for February. However, investors are unlikely to pay much attention to the data as coronavirus outbreak only really started to escalate towards the end of February.
