GBP to USD Exchange Rate Strikes New Best Level in Almost 3 Years as Coronavirus Hopes Keep Boosting Sterling

February 10, 2021 - Written by David Woodsmith

STORY LINK GBP to USD Exchange Rate Strikes New Best Level in Almost 3 Years as Coronavirus Hopes Keep Boosting Sterling

Despite already trending high and the US Dollar attempting to rebound from lows over the past week or so, the British Pound to US Dollar (GBP/USD) exchange rate has resumed its steady advance this week. Investors continue to buy the Pound on the market’s rising coronavirus recovery hopes, while the US Dollar is being sold once again on higher market sentiment and some weak US data.

The US Dollar attempted to rebound against the Pound last week, briefly pushing GBP/USD lower from the level of 1.3705 to a half-month-low of 1.3572 in the middle of the week.

However, Bank of England (BoE) optimism helped the Pound to rebound and GBP/USD ultimately ended the week higher in the region of 1.3735.

This week so far, GBP/USD has been trending with a steadier upside bias.

At the time of writing on Wednesday, GBP/USD is trending near a high of 1.3860. This is the best level for GBP/USD in almost three years, since April 2018.

GBP Exchange Rates Continue to Benefit from Market’s Coronavirus Vaccine Hopes

In recent weeks, the Pound has been getting more and more appealing on hopes around Britain’s coronavirus vaccine programmes.

The UK’s vaccination schemes are further along than those of many other major economies. The number of vaccinations continues to rise day by day, and this has led to speculation that Britain’s economy could be among the first major economies to recover from the coronavirus pandemic.

According to Geoggrey Yu, Senior Market Strategist at BNY Mellon:

‘The UK’s advanced vaccination rates may also start to show its impact in health outcomes and that certainly will strengthen the BOE’s current relatively optimistic case,’

This remains the primary cause of Pound gains, though the US Dollar’s losses is making it easier for GBP/USD to rise.

Some analysts believe the Pound has seen increasing bullishness this year as much of the downside risk hurting the Pound in recent years has faded. According to Jane Foley, Head of FX Sttategy at Rabobank:

‘GBP bulls have been flexing their muscles since the start of the year based on relief about the EU/UK trade deal and on hopes that the relatively rapid vaccine roll-out programme will lead to a fairly fast economic recovery this year’

USD Exchange Rates Weaken as US Inflation Misses the Mark

Investors have been selling the US Dollar back from its best levels this week, taking profit from the rebound surge it saw last week.

While hopes for the US coronavirus vaccine rollout are rising, investors are becoming uncertain about US fiscal policy’s potential impact on the US economy.

On top of this, higher market sentiment is dampening demand for the US Dollar as a safe haven, and the latest US data has disappointed investors as well.

US Treasury yields fell in reaction to today’s weaker than expected US inflation rate data. This weighed on market appetite for the US Dollar as well.

According to Neil Birrell, Chief Investment Officer at Premier Miton Investors:

‘The reflation trade is the hot topic, but there is no sign of it becoming a bigger issue in the short term data, with the US CPI for January coming in as expected at 0.3% month-on-month and a little lower than expected year-on year at 1.4%.

Investors will be looking further out but with the 10 year yield bouncing off 1.2% again, the reflation trade is clearly not a one way bet.’

GBP/USD Exchange Rate Forecast: Could US Dollar Steady Again?

Despite attempting to rebound in recovery last week, the US Dollar is once again on a downward streak this week.

The Pound to US Dollar exchange rate could keep climbing so long as the US Dollar remains weak. However, if upcoming data or news boosts demand for the US Dollar, GBP/USD could slip from its new multi-year highs.

This evening, Federal Reserve Chairman Jerome Powell will hold a speech. If he shows any fresh signs of hawkishness, the US Dollar could see a jump in demand as well.

This is the best chance the US Dollar has of advancing in the coming sessions, but it could find some support if tomorrow’s US jobless claims stats or Friday’s US Michigan confidence stats impress.

As for Pound investors, they will remain focused on Britain’s coronavirus vaccine situation. Improving vaccine rollout could keep the Pound appealing.

However, the Pound’s appeal could fade instead if Friday’s data disappoints.

Poor UK growth rate results on Friday could still surprise markets and knock the Pound to US Dollar (GBP/USD) exchange rate lower.

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TAGS: Pound Dollar Forecasts