Pound US Dollar Exchange Rate Boosted by Risk-On Mood

(Updated 16:45 23/12/21)

The Pound US Dollar (GBP/USD) exchange rate has continued to climb today, although positive data for the US Dollar has weighed on the currency pair.

At time of writing the GBP/USD exchange rate is at around $1.3409, which is up roughly 0.4% from this morning’s figures.

Pound US Dollar (GBP/USD) Exchange Rate Climbs amid Optimistic Market Mood

The Pound US Dollar exchange rate is rising this morning, as a risk-on trading mood sees the US Dollar weakened. Positive data regarding the Omicron variant may also have provided a boost to the currency pair.

At time of writing the GBP/USD Exchange Rate is at $1.3402, which is up roughly 0.4% from this morning’s figures.

US Dollar (USD) Stumbles amid Risk-On Trading and Soaring Covid Cases

The safe-haven US Dollar has struggled today amid an optimistic market mood, although an uptick in bond yields may limit losses for the ‘Greenback’.

Confidence in the US Dollar is likely to be further harmed following a spike in Covid-19 cases across the country, causing many to cancel travel plans.

US infectious diseases expert Anthony Fauci warned that attending large gatherings over the festive seasons was unlikely to be safe for many Americans, particularly if they were yet to get a booster shot.

The US Dollar may continue to see any upward movement hampered the ongoing developments surrounding President Joe Biden’s trillion dollar ‘Build Back Better’ legislation. Whilst Democratic Senator Tim Manchin, a key vote needed for the bill to pass through the US Congress, appeared to shoot down the bill earlier in the week there is already speculation that the bill could be retooled to address his concerns.

Ryan Abraham, a corporate tax adviser at Ernst & Young’s Washington Council, felt that Manchin could still be appeased:

‘I don’t know whether outside of the child tax credit and some discreet changes that Manchin needs, that much, really, on the tax side is going to change. That doesn’t seem to be where his biggest concerns are.’

Pound (GBP) Rises Despite Poor Business Growth and Brexit Worries

The Pound (GBP) has risen against its safer rivals today as the currency benefits from a risk-on trading mood and optimistic data regarding the Omicron variant.

Figures from the Confederation of British Industry (CBI) may temper any renewed confidence however, as British businesses reported their weakest growth since the country’s lockdown earlier in 2021. The CBI’s growth indicator fell 11 points in the three months leading up to December amid global supply chain issues and rising inflation.

The Pound could see Brexit headwinds from multiple avenues today. British car manufacturers had their slowest November in 37 years amid global supply chain issues, although business leaders warned that the problem may only be further exacerbated by the introduction of new customs measures from 1 January.

Across the channel, French Europe Minister Clement Beaune announced today that the country would be pursuing litigation over post-Brexit fishing licenses.

The Pound could also see downward pressure should negotiations between the UK and the EU over the Northern Ireland Protocol fail to be productive. Newly appointed chief UK negotiator Liz Truss has reignited fears that the UK may invoke Article 16 after a softening of tensions under her predecessor David Frost.

GBP/USD Exchange Rate Forecast: Will UK see Post-Christmas Restrictions?

With no new data for the Pound this week, expect the currency’s movements to be affected by ongoing developments surrounding Brexit and the Omicron variant.

UK health officials have repeatedly said that post-Christmas restrictions are still a possibility, and any news of these could cause confidence in the Pound to fall.

The US will see a range of data later today, with personal income and spending for November both forecast to fall as confidence in the US economy wavers which could push the US Dollar downward. A forecast rise in durable goods orders however could help underpin any of the currency’s losses.

Gareth Monk

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