The promise of a £330 billion emergency rescue package from British Chancellor Rishi Sunak, saw the Pound pick up from session lows versus the US Dollar on Tuesday, but still failed to close higher. However, Pound US dollar exchange rate is advancing in early trade on Wednesday as the dollar pauses from breath and as investors continue to digest the latest coronavirus developments.
At 06:20, GBP/USD is trading +0.3% at US$1.2096, snapping 6 straight losing sessions.
Pound Rallies On Chancellor’s Bailout
On Tuesday evening Chancellor Rishi Sunak announced state loan guarantees worth £330 billion, along with an additional £20 billion of financial handouts to help struggling businesses cope with the economic impact of coronavirus. The bailout package aims to keep Britain afloat and offer a lifeline to the very businesses that the governments social distancing and isolation measures will negatively impact.
Consumption will drop sharply as people stay in their homes. Restaurants, shops and pubs will be hard hit. The government announced a one year break from business rates, as well as government grants of up to $25,000. Banks have also agreed to give struggling customers a mortgage holiday of up to three months. An additional support package for the badly hit airlines will be announced in the coming days.
This is a colossal bailout package. However, the Pound’s response has been somewhat lacklustre. Whilst the Pound picked up from session lows on Tuesday, it didn’t even manage a close in positive territory.
Dollar Pauses For Breath
The Dollar thrived versus most currencies in the previous session and is holding those gains in early trade on Wednesday. With fears driving global financial markets, investors continue to buy into the US Dollar for its safe haven properties.
Investors are selling out of just about everything right now for dollars, whilst businesses seek to draw down loans and hoard dollars to see them through the virus outbreak. People are very nervous about their jobs and the future. Despite the Federal Reserve pumping huge amounts of liquidity into the system, there is a shortage of dollars which is boosting the price. This is evident in the US bond yield which jumped 34 points overnight, the biggest one day jump since 2004.
