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GBP/USD Exchange Rate Outlook Keeps Climbing as Markets Become More Confident

GBP/USD Exchange Rate Avoids Big Losses despite Dip in the Pound 

Investors pulled back on the Pound (GBP) today, but the Pound Sterling to US Dollar (GBP/USD) exchange rate remained close to its best levels in years. The US Dollar (USD) outlook remains broadly weak as markets become more confident. 

Since opening at the level of 1.4010 this week, GBP/USD has been trending with an upside bias. GBP/USD surged almost two cents by the middle of the week, touching on a high of 1.4201. This was the best level for GBP/USD in almost 3 years, since April 2018. 

GBP/USD has slipped since touching that high, but only slightly. At the time of writing on Thursday, GBP/USD still trends well above the week’s opening level in the region of 1.4167. 

Key US data is due through the end of the week though. Surprisingly strong US data could boost the US Dollar outlook. 

Pound (GBP) Exchange Rates Avoid Losses Thanks to US Dollar Weakness 

Investors sold the Pound slightly from its recent highs against many rivals today. However against the US Dollar, the Pound has been able to avoid huge losses. 

Today’s continued US Dollar weakness, on the back of comments made by Federal Reserve Chairman Jerome Powell, made it easier for the Pound to hold near highs against the safe haven currency. 

According to Lars Sparreso Marklin, Senior Analyst at Danske Bank: 

‘Classical FX havens are weakening (CHF, JPY) and risk currencies such as GBP and NOK are performing well as US rates are now rising in tandem with equities and commodities,’ 

The Pound outlook remains strong overall on hopes Britain’s economy will recover from the coronavirus pandemic before other major economies do.

US Dollar (USD) Exchange Rates Weak Again as Federal Reserve Sounds Dovish 

The US Dollar has seen mixed performance in recent weeks. While it has attempted to rebound from broad losses, these recovery attempts have been highly limited. 

Since last night, investors have been even more hesitant to hold onto the safe haven US Dollar. Dovish messaging from the Federal Reserve made investors more confident that riskier currencies would yield higher than the US Dollar for some time to come. 

Fed Chairman Jerome Powell said that the Fed would not make any tightening to US monetary policy until the US economy had made a more solid recovery. According to Lee Hardman, Analyst at MUFG: 

‘The improving global growth outlook continues to be supported by loose monetary and fiscal policies’ 

Pound to US Dollar (GBP/USD) Exchange Rate May End Week Near Best if US Data Fails to Impress 

Investors may want to digest today’s US data and await tomorrow’s upcoming stats before deciding whether to attempt another recovery on the US Dollar. 

Following the caution of Federal Reserve Chairman Jerome Powell, markets are awaiting signs of a more sustained recovery in the US economic outlook. 

The US Dollar may continue to react to today’s US growth results through tomorrow, when US wholesale sales and PCE inflation stats will be published. 

US Personal Consumption Expenditure (PCE) inflation data is seen as a more influential measure of inflation to the Federal Reserve. US monetary policy tightening speculation is unlikely to be too influenced by this unless the US economy shows overall recovery though. 

As for the Pound, its outlook remains appealing. The Pound to US Dollar (GBP/USD) exchange rate could still be sold from its best levels if markets perceive the pair as overbought however.