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Pound to Dollar Rate Flirts With 1.40

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After declining on Wednesday, the pound to dollar rate rocketed to a fresh three year high yesterday, as it neared 1.40 – a benchmark it has not touched since April 2018 – amid ongoing vaccine optimism. The roll-out has fuelled hopes of a faster-than-expected economic recovery, which has been reflected in the pair’s recent surge in value.

A total of 15.6 million people have received their first dose of the Covid-19 vaccine to date – the fastest rollout per capita of any large country in the world. This has led to the pound being dubbed a “vaccine currency” – a temporary status it is revelling in. According to ING strategists, the pound has proved to be the most resilient G10 currency versus the dollar – raising expectations that it will break through the 1.40 barrier.

Adding to the upbeat mood were expectations of Boris Johnson’s staged exit from England’s third national lockdown – details of which will be announced on Monday – and the results of a study which found lockdown restrictions have helped reduce Covid-19 infections.

Earlier his month, the Bank of England (BoE) gave financial institutions six months to prepare for a possible decision to cut rates below zero. Yesterday, Michael Saunders – a member of the Bank of England’s Monetary Policy Committee – said he believes negative rates could prove beneficial for the central bank in the future, but the BoE did not need to decide on this yet: “As to whether it’s desirable, whether it’s appropriate to achieve our remit to stabilise inflation, that would be a judgement to take at the time. It is not one we need to make yet,”

By this morning, the pound to dollar rate had edged even closer to 1.40. This was swiftly followed by news that UK retail sales had missed forecasts and fallen in January on an annual basis for the first time since June, as the latest lockdown shut non-essential retailers. Sales slid 8.2% last month compared with December. This represents a much larger fall than the 4.1% dip in November, during the previously in lockdown, and a bigger contraction than the 2.6 % drop forecast by economists.

Meanwhile, UK consumer sentiment strengthened this month but remained relatively gloomy due to the pandemic. GfK’s Consumer Confidence Index rose five points from January to -23 as household’s optimism grew about the economy and their own finances this year.

Dollar Snaps Mini Winning Streak

The dollar struggled yesterday, following upward movement on Tuesday and Wednesday. An unexpected increase in weekly jobless claims was largely responsible for the change in fortunes, during what had otherwise been an upbeat data week. New US jobless claims increased by 13,000 to 861,000 as first-time applications hit their highest level in four weeks – evidence that the labour market’s slow recovery from a winter Covid-19 surge is stumbling.

Looking Ahead

Markit PMIs for the UK’s manufacturing and dominant services sector are due for release this morning, with the latter forecast to rise. It’s a mirror image in the US calendar, where both PMIs are forecast to drop. To discuss these factors in further detail, get in touch using the form below. I’ll be happy to respond and discuss your upcoming exchange and how it could be impacted.

The post Pound to Dollar Rate Flirts With 1.40 appeared first on Pound Sterling Forecast.


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