Pound to Dollar Rate Touches 1.40

The pound to dollar rate continued its steady march towards the 1.40 barrier yesterday, which it touched overnight before retreating to the 1.39 mid-range. Without any UK data to trip it up, the pair was helped higher by a falling dollar and investor hopes that the UK’s Covid-19 vaccine programme will ramp up again. According to government officials, a recent ‘dip’ in vaccination numbers has come to an end, with a surge in supply from manufacturers set to deliver up to 10 million extra vaccine doses across the UK.

This morning, the Office for National Statistics revealed that UK GDP fell 2.9% in January, following growth of 1.2% in December as fresh lockdown restrictions dented the economy. The UK’s dominant services sector took the brunt of the economic blow, shrinking by 3.5% – making it 10.2% smaller than February before the impact of the pandemic was first fully felt. However, the data suggests businesses have adapted relatively well to changing circumstances, with the decline in GDP much lower than the 4.9% forecast.

Construction grew by 0.9% in January, demonstrating that the sector’s recovery has persisted. However, activity in the production sector dropped by 1.5%, after manufacturing contracted for the first time since last April – down 2.3%.

Mixed Bag for the Dollar

The dollar was initially pushed lower by Wednesday’s tame inflation report and a decline in Treasury yields, leading some investors to reduce bets on a rapid acceleration in inflation. However, there was some positive news for the US currency from the Department of Labor, which revealed unemployment claims continued falling at a steady pace. Applications for US jobless benefits fell by more than forecast last week, hitting their lowest level since November as Covid-19 vaccinations accelerated and business restrictions were eased.

It was a busy day for US president Joe Biden. Having signed his $1.9 trillion stimulus package into law, he delivered his first prime-time White House address. The final green light for the bill was delivered by Congress on Wednesday, signalling the start of Mr Biden’s attempts to accelerate the nation’s economic recovery without triggering a jump in inflation.

Yesterday evening, the president said that with continued vigilance, families and friends may be able to gather to celebrate Independence Day on 4 July. During a solemn and sombre speech, he also stressed that the $1.9 trillion American Rescue Plan is focused on “rebuilding the backbone of this country.”

Looking Ahead

This week’s US economic schedule is rounded off by the latest Michigan Consumer Sentiment Index and Producer Price Index (excluding food and energy). Both are forecast to rise, which could lend the dollar some support.

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