The British pound is higher against the US dollar on Tuesday.
The dollar turned sharply lower after the Fed initiated yet another support program and as risk sentiment improved, reducing need for the dollar as a haven.
Despite squeezing out some big gains against the dollar, the pound was under pressure against many currencies after news that UK Prime Minister Boris Johnson was admitted to intensive care.
GBP/USD was up by 103 pips (+0.85%) to 1.2332 with a daily range of 1.2169 to 1.2385 as of 4pm GMT.
The currency pair dipped to below 1.22 in early trade but pulled back to breakeven before rallying another 100 pips to above 1.235. Today’s gains flipped the exchange rate to a positive return for the week to date of +0.84%.
Check real time GBP to USD exchange rate
British pound benefits from dollar weakness
Prime Minister Boris Johnson in intensive care means added UK political uncertainty when all hands on deck are needed amid the coronavirus crisis. The pound dropped on the news but later rebounded when Downing Street updated that the PM was in good spirits and not in need of a ventilator, which would suggest a much worse condition.
Foreign Secretary Dominic Raab will take Johnson’s duties while he is incapacitated. Raab in morning comments said “There is an incredibly strong team spirit behind the Prime Minister, we will implement his plans as soon as possible”
Dollar drops on new Fed easing measure
The Fed announced a new ‘term financing facility’ on Tuesday, saying it would give more details about how it will work on Thursday. The plan is to backstop the so-called “Payroll protection scheme” – the $300 billion cheap loan scheme for businesses to use to keep paying staff. It was announced as part of the US government’s $2 trillion stimulus package.
The term financing facilities are great for commercial banks because they can make loans and take almost no risk in doing so because the loan can always be handed over to the Fed in exchange for cash to keep lending.
Havens like the dollar had already been on the back foot as stock markets rallied on news that a new round of stimulus amounting to around $1.5 trillion could be in the offing come May.