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Pound to Dollar Rate Steadied by Rising Inflation

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The pound was brimming with confidence at the start of the week as it motored its way to 1.40 against the dollar, before stalling on Tuesday. The pair briefly slipped to 1.38 yesterday, as surging global Covid-19 cases soured investor sentiment and sent them seeking cover in the safe-haven dollar. However, positive news from the UK economy appeared to neutralise events elsewhere, leaving the pound vs dollar rate largely rangebound.

Consumer price inflation rose to 0.7% in March from 0.4% in February, official figures from the Office for National Statistics (ONS) showed yesterday morning. The UK’s rate of inflation was boosted by rising oil prices and clothing, as retailers scaled back their Covid-driven discounts. According to the ONS, prices charged by manufacturers rose by 1.9% in the year to March – the highest in almost two years.

Inflation is expected to surge in the coming months, following a sharp increase in household energy bills in April and rising global oil prices. In February, the Bank of England forecast that inflation would hit 1.9% before the end of the year, although many economists believe it will surpass the central bank’s 2% target before then.

This came hot on the heels of another upbeat data release from the ONS on Tuesday, which showed Britain’s unemployment rate unexpectedly fell for a second month in a row to 4.9% in the December-to-February period – further signs that the UK economy’s recovery is gathering pace.

Dollar firms on safe-haven appeal

The dollar pared some of its recent losses yesterday thanks to broad weakness in stock markets, sparked by a resurgence of Covid-19 cases globally. This generated renewed appetite for the dollar’s safe-haven appeal. The US currency’s rebound was also accompanied by softer US Treasury yields.

Looking ahead

The latest GfK consumer confidence index for UK economic activity hits the headlines this evening – and is forecast to improve from -12 to -16 in April. Tomorrow sees the release of UK retail sales figures and the Markit services PMI for Apr, which is forecast to show the sector has expanded further.

Today’s Chicago Fed national activity index for March – a monthly index designed to gauge overall economic activity and related inflationary pressure – and initial jobless claims for the week ending 16 April are the first notable releases from the US economy this week. This is followed tomorrow by the Markit manufacturing PMI, Markit services PMI, Markit PMI composite (all for April) and new home sales – rounding off an unusually quiet week in the US economic calendar.

The post Pound to Dollar Rate Steadied by Rising Inflation appeared first on Pound Sterling Forecast.


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