GBP/USD could see weekend rise due to US economic damage
Follow the latest weekend predictions for GBP/USD trading as the economic fallout from the coronavirus continues to wreak havoc on the US economy.
After a dramatic week which has seen the GBP rally to a one-month high against the US dollar at 1.2630 on Tuesday, before falling back to just below 1.25, there is a growing possibility that the pound could be pushed higher over the weekend.
Much of the recent rally has been attributed to a combination of factors, namely the increasingly grim economic data pouring out the US, combined with a major bounce for European markets and a rise in UK market sentiment spurred by PM Boris Johnson's release from intensive care.
These factors could potentially boost GBP ever higher over the weekend, especially given the recent revelations that economic data coming out of the US in the next few days is likely to paint an even bleaker picture than we currently have. Let's take a closer look and see what we can glean about potential GBP/USD movements over the weekend.
Could the pound go higher?
The past fortnight has already seen the pound make substantial gains against USD, with this trend escalating this week. As markets close today, the pound looks like it will remain firmly settled above $1.25, something few people would have predicted when it was sitting at a mere $1.16 just a couple of weeks ago.
The gains seen today and yesterday are, in part, fuelled by markets in Europe bouncing back, as various major European economies such as Germany, Austria, and Denmark announced that they were easing lockdown measures and making tentative steps towards reopening businesses.
Although there is no sign of such moves being on the horizon for the UK at the moment, the market rally on the other side of the channel was also reflected in the FTSE 100, which was up 158 points today, following the positive news from Europe.
Over the weekend, data that is continuing to pour out of the US will likely have the most substantial impact. USD fell against all major currencies today upon mounting evidence that the US economy is faring much worse than previously predicted. Friday's data indicated that a staggering 22 million job losses have now occurred as a result of the COVID-19 outbreak.
With the US set to experience one of the most severe economic contractions out of all major world economies, investors and traders may flock towards GBP, EUR, and JPY, pushing them higher over the weekend.
Risk aversion could yet reverse gains
Of course, it's worth highlighting that the grim outlook for the US does not necessarily mean GBP/USD will move up. While further figures on the scale of economic turmoil in the US are due to be released from the Fed and the Unemployment Bureau over the next few days are virtually guaranteed to make for distressing reading, losses for the dollar may not materialise.
For one, the data could convince risk-averse investors to flee other currencies and pile onto the safety of the greenback, which remains the world's reserve currency and a safe haven for investors and traders on every continent.
The OBR predicted on Tuesday that UK quarterly GDP could shrink by as much as 35% as a result of the crisis, while the Bank of England stated on Friday afternoon that hopes of a quick bounce back in the future should be tempered and that a long downturn looks likely. All of this could wipe out today's gains for the pound.
How do I participate in weekend trading?
IG is currently the only broker in the UK to offer weekend trading on GBP/USD, with most other brokers offering trading exclusively on Monday to Friday. In addition to this pairing, IG allows members to trade on the Dow Jones, DAX, and FTSE 100.
Our weekend markets give you the ultimate flexibility to be agile and reactive to fundamentals, such as breaking news on the coronavirus outbreak so that you never miss a chance to trade GBP/USD.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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