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Pound to US Dollar Exchange Rate Outlook Boosted by Coronavirus Vaccine Progress

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Pound to US Dollar Exchange Rate Edges Higher after Mixed Monday 

After narrow movement at the beginning of the week, the Pound Sterling to US Dollar (GBP/USD) exchange rate is advancing today. The Pound (GBP) is benefitting from higher market sentiment, while the US Dollar (USD) is sold amid a move away from safe havens. 

Due to the more optimistic market sentiment, GBP/USD has sustained last week’s impressive gains. GBP/USD opened last week at the level of 1.2943 and rose over two cents, closing the week at the level of 1.3154. 

Yesterday’s movement was limited overall. However, this morning, GBP/USD touched on a high of 1.3216 – the best level for the pair in over two months, since early September. 

Sterling continues to hit highs due to losses in the US Dollar. This is despite weakness in the Pound outlook, as Britain’s job market was hit hard by the coronavirus pandemic. 

Pound (GBP) Exchange Rates Up despite Surge in UK Unemployment 

Since yesterday, market sentiment has been on the up. Investors are relieved that Joe Biden won the US 2020 Presidential Election, and news of progress in a key coronavirus vaccine also uplifted moods. 

Pfizer claimed that its vaccine trials were going well, with a safe and effective vaccine close to being ready. This left markets even happier to take risks, following high uncertainty last week. 

As a result, investors were more willing to buy the Pound today. 

Sterling gained, even as the latest UK job market data showed Britain’s job market getting far worse as expected. 

Not only did unemployment surge to 4.8% as forecast, but the employment change figure was a worse than expected –164k. It came as the government’s previous furlough system was unravelled and many workers lost their jobs amid the coronavirus pandemic. 

US Dollar (USD) Exchange Rates Tumbling as Investors Move Away from Safe Havens 

The US Dollar (USD) is a safe haven currency, which is often appealing in times of global market uncertainty. As a result, it saw resilient demand last week amid a tight US 2020 Presidential Election. 

Since the result of the election has become clearer though, safe haven demand has faded. Investors are more willing to take risks again, leaving the US Dollar tumbling. 

This movement only intensified amid yesterday’s coronavirus vaccine news. 

Still, GBP/USD could have advanced even higher, but markets are still being advised to be cautious to not become too optimistic. According to You-Na Park-Heger, FX and EM Analyst at Commerzbank: 

‘Following a euphoric market reaction such as that the question that now arises is whether it was justified or possibly exaggerated, 

Even if the news of a vaccine could be a game changer, we urge caution, as the massive euphoria could be followed by some disenchantment,’ 

Pound to US Dollar (GBP/USD) Exchange Rate May Be in for More Gains 

While analysts have been urging caution over piling into risky assets on the latest optimistic news, there is still plenty of space for more bullishness. 

If markets continue to become more confident in a Joe Biden Presidency, and a coronavirus vaccine, risk-sentiment will only rise. 

This could keep the Pound climbing against the US Dollar. Investors could keep selling the safe haven US Dollar as they look for riskier currencies with higher yields. 

Sterling may be in for even stronger appeal depending on how the Brexit process unfolds in the coming weeks though. 

Analysts believe the UK and EU are getting closer to securing a Brexit deal. One is expected this month. 

Of course, if Brexit concerns worsen or Britain’s coronavirus outlook worsens, the Pound to US Dollar (GBP/USD) exchange rate outlook will remain under pressure.