The pound to dollar rate sunk to a six-week low on Tuesday morning, off the back of upbeat economic sentiment in the US and vaccine supply fears in the UK. Potential shortages of the Oxford-AstraZeneca vaccine, together with reports of EU blockades of deliveries, have raised fears that the UK government’s roadmap out of the current lockdown could stall.
The pair dropped sharply despite reports that the UK unemployment rate for the three months to January fell unexpectedly to 5%, from 5.1% in December – evidence that the labour market is demonstrating signs of resilience amid the Covid crisis. However, the UK claimant count shot up by 86.6k in February, which represents a 3.3% monthly increase and comfortably exceeds forecasts of 9k.
The figures released by the Office for National Statistics also showed annual growth in average employee pay continued to strengthen during January. Average earnings including bonus for the three months to January rose to 4.8%, from 4.7% in December. Average earnings excluding bonus rose to 4.2%, from 4.1%.
This morning, the pound to dollar rate dropped to 1.36 for the first time since early February, following the release of the UK’s Consumer Prices Index. The inflation rate fell back last month as discounted clothes offset rising petrol prices.
Powell Testifies Before Congress
Attention was focused on Federal Reserve Chair Jerome Powell’s testimony before a congressional committee yesterday. Before he took the stand, several data releases hit the headlines: the Richmond Fed Manufacturing Index improved modestly to 17 in March against 14 forecast; and sales of new single-family homes in the US dropped more than expected in February amid bitterly cold weather.
Mr Powell and Treasury Secretary Janet Yellen jointly testified on the government’s pandemic relief efforts. The Fed Chair told US lawmakers that the economic recovery is far from complete, despite encouraging signs and the central bank’s plans to continue providing fiscal support. He said: “The recovery has progressed more quickly than generally expected and looks to be strengthening. But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes.”
A slew of UK data this morning includes the Markit PMI for the dominant services sector, which remains the main driver of the economy. If the index manages to accelerate above the neutral baseline of 50 into expansion territory as forecast, the pound could profit.
A busy day in the US kicks off with the release of Durable Goods Orders. If they show signs of slowing as forecast, the dollar could come under pressure. Mr Powell will then testify before a Senate committee. You can get in touch to discuss these factors in further detail ahead of your currency exchange using the form below.
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