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Pound to Dollar Rate Remains Pinned at 1.41

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Recent gains – inspired by the rapid vaccine rollout, easing of lockdown restrictions and encouraging economic data – brought the pound within a whisker of a three-year high of 1.4240 against the dollar last week, which it hit back in February. Instead, it had to settle for a three-month high of 1.4233. Having slipped back to the 1.41 level on Friday, the pound vs dollar rate held in a tight range on Monday.

With economic data from the UK thin on the ground this week, investors fixed their attention on an address by four Bank of England (BoE) policymakers to a parliamentary sub-committee yesterday. The central bank officials eased concerns that the UK’s rapid economic rebound from the pandemic will trigger a harmful period of inflation. Addressing lawmakers, Governor Andrew Bailey said he expects that the acceleration in prices this year will be temporary. Deputy Governor for Financial Stability Jon Cunliffe said inflation will eventually return to the BoE’s 2% target as growth slows.

Market participants believe the central bank will hike interest rates as early as next year, which suggests that they expect the recovery to gather enough pace to force the BoE’s hand.

Monday’s comments followed the release of consumer price data last week that showed UK inflation more than doubled in April to 1.5%.

Dollar dented by growing risk appetite

The safe-haven dollar began the new week on the backfoot as growing expectations of a robust global economic recovery continued to encourage risk appetite. This downward trend – which began at the end of March – appeared to have slowed recently as traders anticipate higher US interest rates when the Federal Reserve begins to address signs of rising inflation.

Data published by the Federal Reserve Bank of Chicago on Monday showed that the national activity index – a weighted average of 85 existing monthly indicators of national economic activity – declined to 0.24 in April from 1.71 in March.

Looking ahead

The UK Public Sector Net Borrowing figure for April is released by the Office for National Statistics today.

Several notable reports from the US housing sector are scheduled for release today: the Housing Price Index from the Federal Housing Finance Agency, the S&P/Case-Shiller Home Price Indices from Standard & Poor’s and New Home Sales from the US Census Bureau. The Consumer Confidence reading for May from the Conference Board will also hit the headlines.

Data due from the US on Friday – including personal consumption and inflation numbers – could raise expectations of a more hawkish tone from the Federal Reserve’s June policy meeting.

The post Pound to Dollar Rate Remains Pinned at 1.41 appeared first on Pound Sterling Forecast.


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