Pound to Dollar Rate Clings onto 1.40
The pound vs dollar rate dug its heals in during the second half of last week. On Tuesday, the pair touched a two-month high (1.416) before sliding back to 1.40, where it remained until the close of trading on Friday – even managing to recover some of its losses.
The pound had been helped higher by dollar weakness, Scottish election results, the lockdown roadmap and the Bank of England upgrading its economic growth forecast. Better-than-expected GDP data on Wednesday underscored the positive outlook for the UK currency. However, rising dollar support following better-than-forecast US inflation numbers – including consumer prices which increased by the most in nearly 12 years – chipped away at the pound’s rally.
US retail sales unexpectedly stall
The pound to dollar rate was able to edge higher on Friday after US retail sales stagnated unexpectedly last month and concerns about the chances of accelerating inflation receded – causing the US currency to drop in value. According to data released by the Commerce Department, retail sales remained the same in April following a 10.7% surge in March, boosted by economic stimulus. However, another acceleration in retail sales appears to be on the horizon as the US economy reopens and savings amassing by Americans during lockdown are splurged.
A combination of weak economic data – namely last week’s non-farm payrolls report and Friday’s retail sales reading – and evidence of stronger inflation meant the dollar struggled to gather much pace last week.
The dollar’s vulnerability to weak economic numbers was emphasised by the influence of mounting inflation fears on US consumer sentiment, which deteriorated unexpectedly as Americans grew concerned about rising prices. Data released on Friday showed the University of Michigan’s preliminary sentiment index dropped to a three-month low of 82.8 in early May from 88.3 in April – well below economists forecast of 90.4.
Survey respondents said they expect a 4.6% increase in inflation over the next 12 months – the highest reading in a decade – while 43% said prices could rise by at least 5%. Consequently, more consumers expected inflation to outpace income growth, which presents a risk to spending that accounts for two-thirds of the economy.
Looking ahead
An extremely quiet week for the pound sees just three sets of data scheduled for release from the UK economy: Public Sector Net Borrowing on Tuesday, followed by Consumer Credit and Mortgage Approvals on Friday.
In contrast, it’s a busy week in the US, kicking off today with the Chicago Fed National Activity Index for April.
The post Pound to Dollar Rate Clings onto 1.40 appeared first on Pound Sterling Forecast.
Source: https://www.poundsterlingforecast.com/2021/05/pound-to-dollar-rate-clings-onto-1-40/
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