The Pound rally has been gathering steam while risk aversion and US economic concerns weigh on the US Dollar, making it easier for the British Pound to US Dollar (GBP/USD) exchange rate to trend near its best levels in years.
Since opening this week at the level of 1.3585, GBP/USD has been trending higher save for a brief dip near the beginning of the week.
Last night, GBP/USD touched on a high of 1.3742. This was the best level for the pair in over two and a half years, since the first half of 2018.
At the time of writing on Thursday, GBP/USD is trending a little lower in the region of 1.3727, but has still sustained considerable gains this week overall.
Part of this has been due to Pound’s rally gaining momentum in recent sessions.
The Pound found support from better-than-expected UK inflation data earlier in the week. Britain’s government ramping up the nation’s coronavirus vaccination schemes has only further booste the Pound’s appeal.
Britain’s outlook is also becoming perceived as more optimistic than rival economy outlooks. Some analysts are saying that the UK’s handling of vaccination rollout has been better than that of the Eurozone’s.
The US Dollar, on the other hand, has been sold more and more in recent sessions.
As the US Dollar is a currency associated with safe haven demand, improving market sentiment has dampened the currency’s appeal.
Yesterday’s smooth inauguration of Joe Biden as the new US President offset much of the political uncertainty still lingering in outlooks. Investors have been even more willing to take risks since Biden was sworn in.
What’s more, the US Dollar’s appeal has been further weighed by weakness in domestic US data.
While today’s US jobless claims data was a little better than expected, it still continues to paint a dire picture for the US job market.
Markets are becoming more anxious about the US economic outlook, and the task ahead of the new Biden administration to help the economy recover.
As a result, disappointing US data in the coming sessions could make it even easier for GBP/USD to hold impressive gains.
Tomorrow will see the publication of UK retail sales results and PMI projections. If these impress, the Pound’s rally could be extended as the UK outlook would continue to improve.
US PMI projections from Markit will also be published tomorrow. While not a hugely influential print, the data could still give investors a better idea of how the US economy is performing this month.
Of course, the US Dollar will react to shifts in safe haven demand as well. Unless there are any shocks in US politics or the global coronavirus situation, the Pound to US Dollar exchange rate could continue to trend near its best levels in years.