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Pound to Dollar Rate Hits Six-week High

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The pound soared to a six-week high against the dollar on Tuesday on the back of rising optimism that’s been driven by the success of the UK’s vaccine drive and a surprising fall in unemployment – causing it to cross the 1.40 mark for the first time in almost a month. Meanwhile, a broadly weakening dollar took a hit as risk sentiment returned and volatility slumped in global markets.

The unemployment rate unexpectedly fell in the UK to 4.9% during the three months from December-to-February, despite the country being under lockdown for much of this period, official figures from the Office for National Statistics showed yesterday. Economists had forecast the unemployment rate – which has been subdued by the government’s huge jobs subsidies programme – would tick up to 5.1% from 5.0%.

The UK claimant count – a more experimental measure of unemployment that includes all people claiming work-related benefits – rose 0.4%, or 10.1k, to 2.7million in March. While the level was still 114.3%, or 1.4m, above March 2020, it has been relatively stable since May 2020.

Figures released by the Office for National Statistics this morning show that the UK’s rate of inflation has risen, pushed higher by rising fuel and clothing costs ahead of the easing of lockdown restrictions earlier this month. The annual consumer prices index rose to 0.7% last month, up from 0.4% in February, with transport costs making the largest contribution.

Dollar dip continues

The dollar has been beset by headwinds in recent days, largely caused by falling US bond yields, which have retreated from the 14-month highs reached last month – reducing the US currency’s yield allure. Declines in yields and the dollar have come at a time when evidence is mounting that the Federal Reserve could tighten monetary policy at a slower pace than previously expected.

This represents a momentum shift for the dollar compared to the first three months of the year when rising Treasury yields offered higher returns on the US currency. Back then, bond investors bet that massive fiscal stimulus by the US government would trigger faster inflation, leading to an earlier exit from the Federal Reserve’s monetary easing programme. However, repeated assurances from the central bank’s policymakers that near-term price pressures will be transitory seem to have calmed markets in April.

Looking ahead

Tomorrow’s GfK consumer confidence reading for April is the next data release of note from the UK economy.

Another quiet day in the US calendar means tomorrow’s initial jobless claims figure and the Chicago Fed national activity index are the first releases of note this week. A dearth of data from the US economy has left the dollar at the mercy of falling Treasury yields of late.

The post Pound to Dollar Rate Hits Six-week High appeared first on Pound Sterling Forecast.


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