Pound to Dollar Rate Touches Fresh Multi-Month High

The pound flexed its muscles against the dollar last week, allowing it to force its way above the 1.38 level for the first time since April 2018. Providing it with enough strength to firstly reach the multi-month high and then consolidate its position was a combination of factors: negative interest rate developments, vaccine optimism, and dollar weakness. The pound to dollar rate had enough momentum to brush aside several underwhelming economic data releases – including Friday’s GDP figure, which showed the UK economy shrunk at record pace in 2020.

Despite dropping back in 1.37 territory early on Friday, it quickly regained its footing before jumping back through the 1.38 barrier as the week concluded. By this morning, the pair was on the verge of touching the 1.39 benchmark for the first time in almost three years – the latest in a long line of fresh highs already this year.

Providing it with added impetus as the week dawned were reports that the vaccine rollouts in England and Wales have entered a new phase after the most vulnerable groups had all been offered a first jab – with the prime minister expected to say the target has been met across the UK later today.

US Consumer Sentiment Falls

In contrast, the dollar was lacking strength last week as the prospect of sizeable fiscal stimulus – which is expected to fuel a rapid economic recovery later this year – and the Fed’s commitments to keep rates low through to 2022 raised expectations that the safe-haven dollar will be held back. Weaker-than-expected weekly US jobless claims data on Thursday added to the dollar’s concerns.

President Joe Biden pressed ahead with attempting to muster support for his $1.9 trillion emergency spending package throughout the week. On Thursday, House Speaker Nancy Pelosi told reporters that she thinks the rescue proposal will be approved before the end of the month: “We hope to have this all done by the end of February, certainly on the President’s desk in time to offset the March 14th deadline where some unemployment benefits will expire,”

The dollar was dealt another blow on Friday when the University of Michigan reported an ebb in consumer sentiment, which fell unexpectedly in February amid growing pessimism about the economy – despite a decline in new Covid-19 cases and an improvement in the distribution of vaccines.

Looking Ahead

A quiet start to the week in the economic calendar means investors will be bracing themselves for Wednesday’s inflation data from the UK economy. If the headline rate – which is forecast to dip slightly – fails to impress it could stoke bets that the Bank of England will take monetary policy action.

A bank holiday in the US today means investors must wait until Wednesday for a release of note when the US economy releases its own inflation reports. feel free to get in touch using the form below to discuss these factors in further detail to see how your pound to dollar exchange could be impacted.

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