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GBP/USD Outlook: Pound-Dollar Rises as UK Business and Consumer Confidence Hit Year-Highs

March 8, 2021 - Written by John Cameron

GBP/USD Exchange Rate Edges Higher on Positive UK Business Morale

The Pound to US Dollar (GBP/USD) exchange rate rose today following a bout of upbeat UK economic news. The pairing is currently fluctuating around $1.38.

Today saw UK business confidence hit 12-month highs. The BDO’s Services Optimism Index beat forecasts, rising to 94.13 in February from January’s 86.60.

Today also saw the publication of the latest consumer confidence report from YouGov, which rose to 105.4 in February, up from 103.4.

Kay Neufeld, head of forecasting at the Centre for Economics and Business Research, commented on the data:

‘With a road map for the gradual reopening of the economy now published, we expect the positive consumer sentiment to further aid in the recovery over the coming months.’

The Bank of England’s (BoE) Governor, Andrew Bailey, also commented on the growing sense of economic optimism in the UK.

As a result, the GBP/USD exchange rate rose today owing to increasing confidence in the UK’s economy now that it is due to reopen in the next few months.

Additionally, UK Covid-19 infection rates and daily death rates have fallen significantly, buoying confidence in nation’s vaccination programme and economic recovery.

US Dollar (USD) Exchange Rates Sink Despite Strong US Economic Data

The US Dollar (USD) fell against the Pound today despite a surge in US Non-Farm Payroll data, which beat forecasts and buoyed confidence in the world’s largest economy.

February’s US jobs data also improved confidence in the American economy, with 379,000 jobs being added and beating consensus figures.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, commented:

‘The core story here is that the re-opening of services will be the dominant factor in the payroll numbers over the next few months.’

Shepherdson also said that he could ‘easily see a 1 million’ rise in employment, conditional on whether there’s a surge in coronavirus infections or not.

GBP/USD Forecast: Could Growing UK Optimism Boost Sterling?

US Dollar investors will be looking ahead to tomorrow’s release of February’s US NFIB Business Optimism Index.

Any improvement in the outlook for the US economy would boost the USD/GBP exchange rate.

Pound traders will be awaiting tomorrow’s release of the UK BRC Like-For-Like Retail Sales data for February.

If this shows a marked improvement in UK retail sales, however, then we could see the GBP/USD exchange rate head higher.

The GBP/USD exchange rate could continue to head higher this week, however, if the outlook for the UK economy continues to improve on falling Covid-19 rates.

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