GBP/USD Forecast: Pound to US Dollar Exchange Rate Struggles to Advance as US Outlook Continues to Improve

March 31, 2021 – Written by Tim Boyer

Despite some stronger than expected UK data and continued attempts for the Pound to advance, the British Pound to US Dollar (GBP/USD) exchange rate has been struggling so far this week. The US Dollar continues to ramp up strength and firm higher as markets become more confident in the US recovery outlook, and upcoming news and data may be unlikely to change that. Still, a late-week US Non-Farm Payroll shock could cause a shift in US Dollar movement.

Last week saw GBP/USD open the week at 1.3867 and spend the week trending lower. In the middle of the week, GBP/USD touched on a monthly low of 1.3675, before rebounding and recovering around half of the week’s losses.

GBP/USD opened this week at the level of 1.3791, and after a brief advance attempt the pair has once again been trending with a downside bias. Though GBP/USD is attempting to hold above its worst levels, it is still trending below the week’s opening levels in the region of 1.3776 at the time of writing on Wednesday.

Pound Sterling (GBP) Exchange Rates Remain Appealing and Avoid Big Losses

While the bullishness the Pound saw for much of the past month or so has been fading in recent weeks, the British currency’s outlook is still fairly bullish overall.

Today saw the publication of Britain’s final Q4 2020 growth rate results. The data beat expectations, showing that while Britain’s economy was one of the worst performing major economies last year it did not perform quite as badly as expected.

The growth rate report, published by the Office for National Statistics (ONS), also noted that UK households saved at a record pace. According to the ONS:

‘The household saving ratio increased to 16.1% in Quarter 4 2020, an increase from a revised 14.3% in Quarter 3 2020; over the year 2020, the household saving ratio rose sharply, reaching a record high of 16.3%, compared with 6.8% in 2019’

This also boosted hopes that Britain’s public would be ready to spend and cause a surge in economic activity once the economy reopens in the coming months.

Next month will see more shops reopen in England, and investors are currently anticipating that point in the gradual reopening.

Analysts note that Britain’s recovery outlook and vaccination rate are still the biggest reason for Sterling strength. According to Yohay Elam, Analyst at FXStreet:

‘The most recent piece of good news from the UK was the upgrade of Gross Domestic Product statistics for the fourth quarter of 2020 – 1.3% against 1% originally reported. However, the primary driver for sterling’s success is Britain’s rapid vaccination campaign – which is bearing fruit.’

US Dollar (USD) Exchange Rates Remain Appealing as US Economic Outlook Continues to Improve

The US Dollar has seen a big reversal of strength in the past half a month, as markets have woken up to the reality that the coronavirus pandemic could still worsen in many major economies.

As a safe haven currency, the US Dollar is appealing in times of global market uncertainty. This combined with the latest showings of US economic strength have only further boosted the US Dollar’s appeal at this time.

The US Dollar has seen persistent gains lately as investors pile into the currency for its safety and the improving US outlook.

On top of this, US bond yields have been rising amid expectations of stronger US price pressures. This is adding to US Dollar appeal as well.

Weakness in its biggest rival, the Euro, as well as optimism that the US economy will recover from the pandemic quicker than Europe, are the icing on the cake for US Dollar strength lately. According to Chris Turner, Global Head of Markets at ING:

‘With US Treasuries meaningfully under pressure yesterday, the environment is clearly supportive for the US Dollar, particularly as Europe continues to battle with a third Covid wave,’

GBP/USD Exchange Rate Forecast: Manufacturing PMI and US Non-Farm Payrolls Ahead

Demand for the Pound has been mixed, but the Pound to US Dollar exchange rate could mount a fresh advance attempt depending on upcoming data.

Tomorrow will see the publication of the week’s last influential UK data, in the form of Markit’s final March manufacturing PMI. Stronger UK manufacturing data could boost hopes for UK economic resilience and the Pound’s appeal.

US manufacturing PMI data from ISM is also due tomorrow, and has the potential to influence US Dollar movement.

However, US Dollar investors will be primarily anticipating Friday’s session, when key US Non-Farm Payroll data for March will be published.

The US NFP report is a key indicator of US economic strength. Weaker than expected US NFP stats could soften US economic recovery hopes and weigh on the US Dollar’s recent bullishness.

Of course, continued developments in the UK and US coronavirus situations will keep influencing the Pound to US Dollar (GBP/USD) exchange rate as well.

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