November 23, 2020 - Written by John Cameron
STORY LINK GBP to USD Exchange Rate at 2 and a Half Month Best amid Brexit and Coronavirus Hopes
Hopes for optimistic developments in the ongoing Brexit and coronavirus situations is keeping the British Pound to US Dollar (GBP/USD) exchange rate strong today. Markets remain hopeful that the UK and EU negotiators are getting closer to reaching a Brexit deal, while coronavirus vaccine news is making markets even more optimistic. This is keeping the US Dollar under pressure as well, as the US Dollar is often less appealing in times of higher market confidence.
Last week saw fairly solid but steady advances for GBP/USD. The pair opened the week at the level of 1.3194 and trended higher throughout the week, gradually closing the week at the level of 1.3287.
This week’s movement has already been more bullish though, as GBP/USD quickly saw a jump in demand.
At the time of writing, GBP/USD trended near a high of 1.3394. This was the best level for GBP/USD since the beginning of September, over two and a half months ago.
GBP Exchange Rates Surges on Market Optimism over Brexit and Coronavirus Vaccines
The Pound is continuing its bullish movement today, seeing an even stronger jump in demand as it is boosted by market sentiment.
Despite a lack of solid developments over Brexit lately, markets continue to become more and more optimistic about the chances of the UK and EU reaching a deal on Brexit soon.
The latest coronavirus vaccine developments were also beneficial to Sterling. This is because AstraZeneca, who announced the latest vaccine success, is a British company.
Analysts Robin Winkler and George Saravelos at Deutsche Bank have expressed optimism that major economies, including Britain’s, could have the coronavirus pandemic largely behind it by next summer. They said:
‘The combined vaccine news of the last few weeks is an unprecedented victory for science that will lead to a much faster pace of normalization to our daily lives compared to what we would have assumed just a few weeks ago. By spring, things should be looking much closer to normal.’
On top of these factors, the Pound has also been supported by today’s UK PMI projections, which came in above expectations in all major prints.
The data indicated that Britain’s economy was weathering its second coronavirus lockdown better than expected so far.
USD Exchange Rates Unappealing as Markets More Willing to Take Risks
The US Dollar is a safe haven currency. This means it often gains in times of broad market uncertainty.
However, it also means that it is commonly weak in times investors are more willing to take risks, such as when the global outlook is becoming more optimistic.
This has been keeping pressure on the US Dollar in recent weeks. More companies are announcing major progress on coronavirus vaccine trials, making markets hopeful that there could be a major economic rebound from the coronavirus pandemic next year.
Vaccine optimism is making the safe haven US Dollar unappealing, even amid surges in coronavirus infections in major economies including the US.
According to Fawad Razaqzada, Analyst at ThinkMarkets:
‘... we are getting ever closer to hopefully becoming immunised to COVID, which means life can return to more normal levels soon. As such, investors are continuing to shrug off concerns about the ongoing global surge in coronavirus cases and piling back into sectors that had been hurt badly by the pandemic such as travel and leisure. Crude oil prices have also risen as investors hope that with the development of vaccines, there will be a quicker return to normal levels of travel and economic activity.’
GBP/USD Exchange Rate Forecast: Optimism Could Keep Pair High
The Pound to US Dollar may be in for another week of gains, depending on whether the current market optimism persists or not.
So long as markets remain hopeful that a Brexit deal is getting closer, and coronavirus vaccines will help major economies next year, the Pound to US Dollar exchange rate is likely to keep trending with an upside bias.
Data to look out for tomorrow includes UK distributive trades data from the Confederation of British Industry (CBI), and US manufacturing data from Richmond Fed.
This data could be overshadowed by potential Brexit and coronavirus developments though, which will remain the primary focus for both currencies.
The US Dollar could see stronger demand if markets look for safe havens again. For example, a sudden coronavirus complication could cause safe haven demand to rise.
A little later in the week, UK coronavirus fears could worsen if budget news from the UK Treasury concerns investors.
Of course, any shifts in tone from Federal Reserve
officials in speeches this week could also influence the Pound to US Dollar exchange rate.
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TAGS: Pound Dollar Forecasts