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Pound to US Dollar Exchange Rate Struggles to Advance amid Gloomier UK Economic Outlook

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Pound to US Dollar Exchange Rate Seeing Narrow Fluctuations as Both Currencies Weak

The Pound Sterling to US Dollar (GBP/USD) exchange rate outlook became gloomier in response to today’s UK growth rate results. With major Brexit and US political uncertainty still dominating the outlook though, movement in the pair could remain volatile.

Since opening this week at the level of 1.2933, GBP/USD has been seeing fairly narrow fluctuations around these levels. Throughout the week, GBP/USD fluctuated between highs of 1.2994 and lows of 1.2857 – movement of just over a cent.

At the time of writing on Friday, GBP/USD was once again trending near the week’s opening levels. The latest UK data meant the Pound (GBP) was unable to capitalise on US Dollar (USD) weakness.

Looking ahead, UK Brexit developments are likely to dominate the Pound outlook in the coming weeks. Meanwhile, uncertainty over the upcoming US Presidential Election will determine the direction of US Dollar (USD) trade.

Pound (GBP) Exchange Rates Weighed as UK Growth Outlook Dampens

The Pound lacked the drive to capitalise on the US Dollar’s weakness today. Today saw the publication of Britain’s August growth rate results, which fell short of expectations.

Analysts had expected UK growth to rise by over 4% month-on-month, thanks to UK government efforts to stimulate economic activity. However, monthly growth only printed at 2.1%. The yearly figure came in with a deeper than expected contraction of -9.3%.

Analysts said that the data made it less likely that Britain would see a v-shaped recovery from the coronavirus pandemic. There are also concerns that Britain is headed back into restrictive periods as a second wave of infections hits.

Still, the data ultimately had little major impact on the Pound outlook. This is because Pound investors remain focused on Brexit. According to Dean Turner, Economist at UBS Global Wealth Management:

‘When it comes to the outlook for Sterling, we think that the progress on Brexit negotiations is likely to have a bigger impact on the currency in the near term.’

US Dollar (USD) Exchange Rates Tumbling as Market Sentiment Improves

The US Dollar has also seen broadly mixed movement this week. As a currency correlated to market demand for safe havens, the US Dollar was stronger amid uncertainties about the health of US President Donald Trump, as well as fading hopes for US fiscal stimulus.

However, that safe haven demand was limited. Hopes for some kind of stimulus have returned.

What’s more, markets are increasingly betting on a US Presidential Election win for Democratic Party challenger Joe Biden.

Biden’s polls have been improving in recent weeks, and a Biden Presidency would make more fiscal stimulus and support for the coronavirus-struck US economy more likely.

According to Marshall Gittler, Head of Investment Research at BDSwiss Group:

‘There’s been a noticeable decline in implied volatility around the election date, which suggests that the market is getting more confident of the outcome and that it’s satisfied with the likely result,’

Pound to US Dollar (GBP/USD) Exchange Rate Awaits Political Developments

Amid a quieter economic calendar next week, the Pound to US Dollar exchange rate outlook is more likely to be driven by potential developments in UK and US politics.

With key dates approaching in both the Brexit process and the US Presidential Election, political developments are likely to be especially noteworthy.

Next week was originally a key deadline in UK-EU Brexit talks. However, it is now expected that negotiations will last beyond this point. Still, concerns persist that the UK government could pull out of talks.

Dean Turner at UBS Global Wealth Management expects a deal is a more likely outcome:

‘We continue to expect a deal, albeit late in the day, and expect the Pound to trade a little higher against the Euro and Dollar following the end of transition period.’

Meanwhile, the US Presidential Election, set for November, draws ever closer. US President Donald Trump will likely look to make up lost ground in the polls, and any other surprise developments in US politics will be closely watched by markets.

As for data, next Friday’s US retail sales results could also influence the Pound to US Dollar (GBP/USD) exchange rate outlook if it surprises investors.