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Pound US Dollar Exchange Rate Outlook Awaits PMI and Bank of England (BoE) News

Bank of England

Pound US Dollar Exchange Rate Jittery as Both Currencies Strengthen 

The Pound US Dollar (GBP/USD) exchange rate continues to see mixed movement this week, as both currencies strengthen. The Pound (GBP) is struggling to climb higher against the US Dollar (USD) as the pair nears its best levels in years. 

Volatility has been the name of the game for GBP/USD in recent weeks. Last week saw GBP/USD open at the level of 1.3682 and fluctuate between lows of 1.3610 and multi-year-highs of 1.3751, before closing the week at the level of 1.3705. 

After markets opened again yesterday. GBP/USD jumped close to last week’s 2 and a half year highs again before falling back. At the time of writing, the US Dollar is attempting to recover against Sterling and GBP/USD trends in the region of 1.3676. 

Pound (GBP) Exchange Rates Remain Appealing on UK Economic Recovery Outlook 

Investors continued to buy the Pound today, with the British currency’s rally persisting against many major rivals. 

While GBP/USD has been unable to hold its best levels, investors are hesitant to sell Sterling from its highs too much as the market mood on the currency remains bullish for now. 

As for the past week or so, the Pound’s appeal is due largely to optimism that Britain’s coronavirus vaccine programmes are further along than those of other major economies. 

Today has seen ING upgrade its UK forecasts for late-2021 due to hopes that vaccines will lead to economic recovery. According to a note from ING Bank: 

‘The faster pace of UK vaccination, the scope for a stronger 2Q21 recovery and less dovish Bank of England (vs the European Central Bank) should all benefit GBP vs EUR’ 

US Dollar (USD) Exchange Rates Benefit from Rival Weakness despite Market Sentiment 

The US Dollar is a safe haven currency. This typically means it strengthens in times of market uncertainty and tumbles when investors are more confident. 

However, while confidence is returning to markets this week, the US Dollar remains appealing. 

Investors are buying the US Dollar largely due to weakness in its biggest rival, the Euro (EUR). Concerns about the Eurozone’s coronavirus situation and vaccine dose stumbles are causing Euro losses. 

On top of this, some analysts believe that the market is simply finding the US Dollar more appealing again. According to Moh Siong Sim, Currency Analyst at Bank of Singapore: 

‘US interest rates are perhaps on the rise because of the fiscal stimulus and the fact that US economy is holding up well,’ 

Pound US Dollar (GBP/USD) Exchange Rate Awaits PMIs and BoE News 

The coming sessions could be highly influential for the direction of Pound and US Dollar movement, as key data and central bank news is expected. 

Wednesday will see the publication of January services PMIs for both the UK and US. 

As services make up a big chunk of Britain’s economic activity, any surprises in the UK services PMI could cause a shift in the Pound’s movement.  

Of course, the US non-manufacturing PMI from ISM is highly influential for the US economic outlook as well. Though it will not be as influential to the US economic health outlook as the Non-Farm Payroll report, due on Friday. 

Later in the week will also see the Bank of England (BoE) hold its February policy decision. Expected on Thursday, any unexpected shift in tone from the BoE could have a big impact on the Pound US Dollar (GBP/USD) exchange rate’s movements. 

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