Pound to US Dollar Exchange Rate Hits Best 2020 Levels amid UK Data and USD Weakness
Despite concerns over UK-EU Brexit negotiations, the Pound Sterling to US Dollar (GBP/USD) exchange rate is climbing again today. Continued weakness in the US Dollar (USD) is making it easier for the US currency’s rivals to strike new highs.
GBP/USD has been trending with an upside bias in recent weeks. Though its sustained gains have been limited, GBP/USD continues to edge higher and higher.
This morning, GBP/USD touched on a high of 1.3436 – the best level for the pair since December 2019.
Looking ahead, the Pound (GBP) outlook could become even stronger gains against the US Dollar if there are optimistic Brexit developments soon.
Pound (GBP) Exchange Rates Boosted by UK Data despite Lack of Brexit Progress
This week’s UK ecostats have been fairly optimistic, which have strengthened the Pound outlook.
While Britain’s economy underwent a second national lockdown in November, today’s PMI report of Britain’s key services sector was not as weak as expected.
Not only was November activity better than expected, but businesses are more optimistic about the coming year. According to Tim Moore, Economics Director at IHS Markit, this is due to optimism over a coronavirus vaccine and economic recovery:
‘Hopes that the pandemic will be brought under control from an effective vaccine resulted in a sharp improvement in business optimism during November.’
However, concerns that UK-EU Brexit negotiations are running out of time and could lead to a no-deal Brexit are still weighing on the Pound outlook. This is limiting GBP gains.
US Dollar (USD) Exchange Rates Continue to Tumble as Global Outlook Improves
Investors are becoming more and more willing to take risks as the global outlook over politics, economic recovery and the coronavirus pandemic looks more optimistic for 2021.
As a result, the safe haven US Dollar continues to fall as investors sell it in favour of riskier assets with higher yields.
According to Esther Reichelt, Strategist at Commerzbank:
‘Additional fiscal stimulus ahead of the new President Joe Biden assuming office would lower the current downside risks for the economy and thus principally fuel inflation expectations, which will weaken the dollar in view of the Fed’s long-term expansionary monetary policy targets,
The subject is likely to remain an important issue on the FX market for now,’
Recent US data has also been underwhelming as the coronavirus pandemic surges across the US. This is further weighing on USD.
Pound to US Dollar (GBP/USD) Exchange Rate Outlook to be Driven by Brexit and NFP News
If market sentiment continues to improve, the Pound to US Dollar exchange rate outlook will remain more bullish.
However, GBP/USD could become even stronger if Brexit optimism improves.
If there is any noteworthy progress in Brexit negotiations or expectations of a deal being reached in time rise, the Pound will become more appealing again. This could keep GBP/USD trending around its best levels.
On the other hand though, no-deal Brexit fears worsening could make it easier for the US Dollar to recover some recent losses.
The US Dollar outlook could also strengthen if tomorrow’s US Non-Farm Payroll report impresses investors. NFP job data is often seen as a key indicator of US economic health, so strong stats could boost the US Dollar outlook.
Overall, the Pound to US Dollar exchange rate outlook will remain focused on Brexit and global risk sentiment developments over the coming sessions.
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