British Pound to US Dollar Exchange Rate Struggles to Recover after Profit Taking Hit

The past week has seen both the Pound and US Dollar sold from their best levels, but the British Pound to US Dollar (GBP/USD) exchange rate is tumbling as the Pound was hit particularly hard by a shift in market appetite.

Both currencies have seen strong movement in recent weeks, leading to GBP/USD volatility. Last week, GBP/USD dipped before ultimately advancing from the level of 1.3790 to 1.3830.

This week’s movement has been even more volatile. GBP/USD touched on a fortnight best of 1.3918 earlier in the week, before tumbling and shedding all of last week’s gains.

At the time of writing on Thursday afternoon, GBP/USD trends lower in the region of 1.3761.

This week’s Pound to US Dollar exchange rate losses have been largely due to a profit-taking rush in the Pound.

After Sterling hit its best levels in months against many major currencies, investors sold it from its highs for profit.

Today’s UK construction PMI report was stronger than expected. However, the data did not help the Pound to recover this week’s losses.

Investors may be hesitant to buy Sterling too much as Britain’s vaccination rollout has not been accelerating as much as some in other major economies, such as the US.

Despite these losses though, the Pound outlook remains fairly strong overall.

Investors remain optimistic that Britain’s economy is recovering from the coronavirus pandemic. What’s more, more parts of the UK economy are expected to reopen from lockdown next week, including some bars and shops.

The US Dollar’s own hawkish run has run out of steam for now as well though, as the Federal Reserve’s latest meeting minutes indicated the bank was nowhere closer to tightening monetary policy.

Speculation around signs of rising US inflation were once again doused by the bank’s cautious tone on monetary policy. This has slowed GBP/USD losses today and made it easier for Sterling to hold its ground against a slightly weaker US Dollar.

Unless the Fed makes any hints that it is concerned about inflation, the US Dollar may not strengthen much more.

Markets are now awaiting tonight’s speech from Fed Chairman Jerome Powell. Continued dovishness from Powell will dampen the US Dollar’s ability to capitalise on Pound weakness, and could make GBP/USD recovery easier.

Tomorrow’s US wholesale prices report will also be closely watched.

Of course, any surprising developments in the UK or US coronavirus situation will remain influential as well.

For now though, Pound to US Dollar exchange rate investors will be awaiting next week’s key data including UK growth results.