Pound to Dollar Rate Reacts to Downbeat Data
The pound to dollar exchange rate managed to hold its nerve for much of this week, having passed through the 1.38 barrier for the first time since April 2018. If its relationship with the 1.37 resistance level this year was anything to go by, bets were on it recoiling immediately. However, a combination of vaccine optimism, negative interest rate updates, a sparse UK data calendar and dollar weakness allowed it to maintain its strength for the large part.
A housing market upswing towards the end of 2020 reversed sharply last month as lockdown restrictions returned and a tax break for buyers neared expiry. The Royal Institution of Chartered Surveyors revealed that house price growth slowed more than forecast, with London prices falling for the first time since July.
A data dump from the Office for National Statistics this morning was dominated by the latest GDP figure, which showed the UK economy experienced a record contraction in 2020. The 9.9% shrinkage last year more than doubled the previous largest annual fall on record as lockdown restrictions stifled output. The economy expanded by 1.2% in December, having shrunk by 2.3% in November, due to the loosening of lockdown restrictions in the UK.
UK industrial and manufacturing production data also hit the headlines, suggesting that the recovery in Britain’s industrial sector remained bumpy in December. Manufacturing output was recorded at 0.3% in December, compared to the 0.6% forecast and 1.1% in November, while industrial output arrived at 0.2%, compared to the 0.5% forecast and 0.3% in November.
By this morning, the pound to dollar rate had slid below the 1.38 benchmark.
Weak Data Continues to Hold Back Dollar
The dollar was feeling the weight of slightly weaker-than-expected US jobless claims data yesterday. This followed soft inflation numbers and a downbeat message from Federal Reserve Chair Jerome Powell around the state of the US labour market on Wednesday. Mr Powell also reiterated that the Fed’s new monetary policy framework could support annual inflation above 2% before raising interest rates, reinforcing expectations of meagre returns from the dollar.
Thursday’s data from the US Department of Labor showed that a seasonally adjusted 793,000 initial claims for state unemployment were made in the week ending 6 February, compared to 812,000 the previous week and forecasts of 757,000. While the data has improved recently, claims remain inflated compared to pre-pandemic levels and higher than figures reported in October and November.
Looking Ahead
With the UK’s data delivered, the only release of note that remains in the economic calendar is the Michigan Consumer Sentiment Index for February, which is forecast to rise – a move that could lend the dollar some much-needed support. Get in touch using the form below if you have an upcoming currency exchange and would like to know more about how these factors are likely to impact your exchange rate.
The post Pound to Dollar Rate Reacts to Downbeat Data appeared first on Pound Sterling Forecast.
Source: https://www.poundsterlingforecast.com/2021/02/pound-to-dollar-rate-reacts-to-downbeat-data/
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