The British Pound to US Dollar exchange rate surged higher on Wednesday, closing the day above the key 1.2000 level. This was welcomed by economists at Scotiabank, who believe that the pair could extend its rally even further, with the potential to reach the mid-1.24s.
The bullish move was driven by a “bullish outside range” which rejected the 200-Day Moving Average support. This has put focus on the mid-1.21 zone, where last week’s high and the 55-Day Moving Average (DMA) converge. This could potentially be a “double bottom trigger”, following the Pound’s two tests of the 1.1925/30 area. If this is the case, then the exchange rate could target a retest of recent peaks in the mid-1.24s.
The Pound has been relatively volatile in recent weeks, with the exchange rate having been driven by a number of different factors. Firstly, it has been impacted by the UK’s economic outlook, with the government’s coronavirus restrictions having a significant impact on the country’s economy. As a result, the Pound has weakened against its peers, with investors taking a cautious approach.
At the same time, the US Dollar has been supported by the Federal Reserve’s accommodative monetary policy, with the central bank’s decision to keep interest rates at near-zero levels helping to boost the currency. This has been further supported by the strong performance of the US economy, with the labour market continuing to improve.
Looking ahead, the outlook for the GBP/USD exchange rate is likely to be heavily influenced by the UK’s economic performance. If the country’s economy continues to suffer from coronavirus restrictions, then the Pound could remain under pressure. However, if the UK’s economic outlook improves, then the exchange rate could strengthen.
On the other hand, the US Dollar could remain supported by the Federal Reserve’s accommodative monetary policy. This could help to boost the currency, as investors continue to seek out safe-haven assets. In addition, the US economy is likely to remain strong, with the labour market continuing to improve.
In conclusion, the outlook for the GBP/USD exchange rate is likely to be heavily influenced by the UK’s economic performance. If the country’s economy continues to suffer from coronavirus restrictions, then the Pound could remain under pressure. However, if the UK’s economic outlook improves, then the exchange rate could strengthen. At the same time, the US Dollar could remain supported by the Federal Reserve’s accommodative monetary policy, with the strong performance of the US economy likely to help to boost the currency. Economists at Scotiabank believe that the pair could extend its rally as high as the mid-1.24s, with the potential for a retest of the recent peaks.
