The GBP/USD currency exchange rate kicked off Monday’s trading on the London market on a weak bearish trend as the U.S dollar gains some ground on the GBP due to more demand as a safe haven.
The currency pair demonstrated strong resistance as the price gained some downward momentum which allowed it to break through the 1.2462 resistance level. However, the GBP/USD also demonstrated strong support at around the 1.2444 level, indicating the lack of strong momentum and thus the weak bearish performance.
There are a couple of factors behind the Pound Sterling’s performance relative to the U.S dollar. Among them is the fact that many investors have been using the U.S dollar as a haven currency since it is less volatile compared to most other currencies especially during these trying times. The USD therefore experienced significant demand on Monday morning, thus allowing it to gain over the GBP.
The GBP has also been experiencing some weakness due to the current unfavorable investor mood on account of the impact of the coronavirus on the UK economy. Investors have generally not favored the GBP especially with negative expectations from top analysts and organizations. For example, the International Monetary Fund recently pointed out that the Coronavirus might fuel the worst economic recession that the world has experienced since the days of the Great Depression.
The UK’s economy has been hit hard by the lockdown and quarantine measures that were implemented to try and slow down the spread of the coronavirus. Recent reports revealed that the British government is cautious about easing the lockdown measures because the COVID-19 threat is still alive. Meanwhile, the U.S has been contemplating further economic support measures as well as plans to reboot the economy.
Right now investors are on high alert when it comes to government announcements that may influence the economy in either direction. However, the expectations of a massive recession have got traders on high alert and thus the low volumes resulting in a weak bearish performance of the GBP/USD currency pair.