Pound to Dollar Rate Slips Back to 1.39

After touching 1.42 for the first time since April 2018 on Wednesday, the pound vs dollar rate settled into 1.41 territory. With nothing to offer from the UK’s economic calendar since Tuesday, the pair has been able to ride high on hopes of an economic recovery.

The rapid vaccine rollout and the recent announcement of the roadmap out of lockdown have inspired the upbeat outlook. About 27% of Britons have already received a first jab, making the UK’s vaccination programme the most advanced in Europe – and raising hopes of an economic boom as the nation emerges from lockdown next month. According to a Bloomberg poll, the UK economy is expected to grow 4.6% this year and 5.5% in 2022. This would represent a vast improvement from 2020 when the UK recorded its sharpest fall in output in over 300 years.

Economic data from the UK has made for gloomy reading of late, with the unemployment rate for December and retail sales figures for January painting a bleak economic picture. However, investors are choosing to look beyond the impact of the lockdown to anticipate a sharp rebound in activity now the end is in sight. And they were given more reason to hope for the best following yesterday’s announcement that the UK’s Covid-19 alert level has been downgraded as the threat of the NHS being overwhelmed recedes.

US Economy Grows at a 4.1% Pace in Q4

US gross domestic product – the broadest measure of economic health – grew at a 4.1% pace in the final three months of 2020, slightly faster than first estimated. This rounded off a turbulent year during which the overall economy – ravaged by the Covid-19 pandemic – shrank more than in any year over the last seven decades. Economists have suggested that economic growth could reach 5% by the end of March, as new government stimulus efforts and accelerated vaccine distribution boost confidence.

The good news for the dollar did not end there after the Commerce Department revealed that US orders for durable goods – items that are meant to last at least three years – accelerated in January by the most in six months, extending the steady rebound for the manufacturing sector.

A surge in dollar demand yesterday – triggered by soaring US Treasury yields – caused the pound to dollar rate to fall below 1.39 this morning.

Looking Ahead

The Bank of England’s Deputy Governor for Markets, David Ramsden is scheduled to make a speech today. If he echoes growing confidence in the UK economy, the pound could head higher.

Over in the US, investors are greeted by a slew of notable data today: Personal Income, Personal Spending, Core Personal Consumption Expenditure – Price Index, Chicago Purchasing Managers’ Index, Michigan Consumer Sentiment Index.

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