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Pound to US Dollar Exchange Rate Slides Back as UK Growth Fears Cloud Outlook

Pound to US Dollar Exchange Rate Tumbling as Vaccine Hopes Tempered 

Earlier in the week, the Pound Sterling to US Dollar (GBP/USD) exchange rate surged. However, as UK economic concerns worsen and this week’s coronavirus vaccine hopes soften, the pair is quickly shedding some of those impressive gains. 

Since opening this week at the level of 1.3145, GBP/USD has been trending with an upside bias. Yesterday, GBP/USD even touched on a high of 1.3292 – the best level for the pair in two months. 

After touching that high, GBP/USD fell back and has been sliding. At the time of writing on Thursday, GBP/USD trends near the level of 1.3195. This leaves the pair closer to the week’s opening levels again. 

Rather than boosting optimism for a UK economic recovery, today’s UK growth results made markets more concerned about Britain’s outlook. Coronavirus jitters persist around the globe, keeping safe havens like the US Dollar (USD) relatively appealing. 

Pound (GBP) Exchange Rates Fail to Find Bright Spot in Gloomy Growth Report 

The UK economy grew at a record quarterly rate in Q3, as it tried to rebound from the first coronavirus lockdown amid easing restrictions. 

However, Britain’s growth rate slowed notably in September, and analysts believe there will be more weakness ahead for Britain’s economy. 

It comes as this morning’s UK Gross Domestic Product (GDP) growth rate report fails to meet forecasts. Quarterly growth came in at 15.5% rather than the expected 15.8%, and the yearly growth rate contracted at –9.6% – more than expected. 

According to Alistair McQueen, Head of Savings and Retirement at Aviva: 

‘Acute economic uncertainty is causing recessionary fears to surface again. Today’s positive figure for Q3 is unlikely to carry over to Q4, suggesting that the recession of 2020 looks set to resume next year.’ 

US Dollar (USD) Exchange Rates Buoyed as Coronavirus Vaccine Hopes Tempered 

The US Dollar is a safe haven currency. This means it is often strong in times of global market uncertainty. 

As a result, it has seen lingering demand in recent weeks with coronavirus and political uncertainties worsening in major economies around the globe. 

Investors briefly sold it amid this week’s news that a coronavirus vaccine effort from Pfizer Inc was seeing significant progress. However, markets have since realised that a gloomy winter period for major economies is still highly likely. 

With a vaccine still months out, many major economies including the Eurozone and US will continue to be hit by the pandemic even during the key holiday season. 

This is boosting the US Dollar today. While vaccine hopes are high, lingering safe haven demand is keeping USD from falling further. 

Pound to US Dollar (GBP/USD) Exchange Rate Could Advance Again on Brexit Developments 

While Britain’s economic outlook remains fairly gloomy, there is potential for a big boost in the coming weeks. 

UK and EU officials expect that a Brexit deal of sorts will be agreed sometime this month. Speculation has risen in recent sessions that a deal could be presented next week some time. 

If there is some kind of optimistic Brexit outcome, the Pound outlook is likely to be much stronger. Uncertainty in the Brexit process has been one of the most major causes of Pound weakness in the last four years. 

Of course, if Brexit uncertainty worsens again or no-deal fears rise, the Pound could see losses instead as the outlook would worsen. 

Meanwhile, the US Dollar could continue to find support from safe haven demand, amid expectation for a coronavirus-dominated holiday season. 

Tomorrow’s US confidence data is unlikely to be hugely influential either, leaving the Pound to US Dollar exchange rate outlook focused on politics.