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Pound to US Dollar (GBP/USD) Exchange Rate Rises on Cautious Brexit Optimism

December 1, 2020 - Written by John Cameron

GBP/USD Exchange Rate Rises as UK Brexit Talks Enter Crucial Stretch

The Pound to US Dollar (GBP/USD) exchange rate rose by 0.2% today, with the pairing currently trading around $1.337.

Sterling has benefited from cautious optimism over Brexit, after the UK Foreign Secretary Dominic Raab said that there is a case for a post-Brexit trade agreement with the EU.

However, Mr Raab also warned that the European Union (EU) needed to be more ‘pragmatic’ in negotiations with Downing Street.

As a result, GBP investors are remaining somewhat cautiously optimistic as talks between the two sides enter their crucial last stretch.

Meanwhile, in UK economic data, today saw the release of the latest UK Manufacturing PMI for November, which beat forecasts and rose to 55.6.

Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, commented on the data:

‘Though the Brexit bounce continued for some, reluctant spending amongst shoppers meant that the consumer goods sector fell behind and the level of orders and production dropped. The impact of redundancies in the UK has affected consumer confidence though manufacturing positivity for the year ahead was the highest since September 2014.’

US Dollar (USD) Sinks as Risk Sentiment Improves

Demand for the safe-haven US Dollar has remained compromised ever since the announcement of a rollout of Covid-19 vaccines in the coming months.

As a result, investors are becoming more optimistic about a global economic recovery, which has improved global risk sentiment and demand for riskier assets.

However, USD investors are also becoming increasingly concerned about America’s domestic Coivd-19 situation, which looks set to worsen over the next few months.

In US economic data, today saw the release of November’s ISM Manufacturing PMI, which dipped to 57.6.

Timothy Fiore, the Chair of the Institute for Supply Management, commented:

‘Manufacturing performed well for the sixth straight month, with demand, consumption and inputs registering growth, but at slower rates compared to October. Labor market difficulties, both current and anticipated, at panelists' companies and their suppliers will continue to dampen the manufacturing economy until the coronavirus (COVID-19) crisis ends.’

Nevertheless, demand for the safe-haven ‘Greenback’ is likely to remain subdued as risk sentiment continues to improve on hopes that the Covid-19 vaccine could restore a semblance of stability to the global economy.

GBP/USD Forecast: US Employment Data and Brexit in Focus

US Dollar (USD) investors will be awaiting tomorrow’s release of November’s US ADP Employment Change report.

Any improvement in the US jobs situation could boost the ‘Greenback’.

However, the USD/GBP exchange rate will likely remain subdued as risk sentiment continues to improve on hopes of a Covid-19 vaccine rollout.

Brexit developments will continue to drive the Pound.

As a result, we could see the GBP/CAD exchange rate fall if UK-EU trade negotiations fail to result in a post-Brexit trade agreement.

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