Pound to Dollar Rate Feels Weight of Covid Concerns

The pound vs dollar rate was rangebound yesterday as investors considered the possibility that a new Covid-19 variant – first identified in India – could push back the final phase of the government’s roadmap out of lockdown on 21 June. Having touched a fresh three-year high against the dollar on Tuesday, the pound dropped lower almost immediately – falling from 1.4250 back to the 1.41 level.

The pound has been spurred on by Britain’s rapid vaccination programme this year, which has engendered positive global investor sentiment towards the UK currency. On Tuesday, the nation reported no new deaths within 28 days of a positive Covid-19 test for the first time since March last year. However, the upbeat news followed a national holiday, a factor that has previously distorted the data.

However, it appears investors have recently become more watchful amid concerns about the spread of the new Covid-19 variant across Britain and the risk it poses to the government’s 21 June ‘Freedom Day’ plans – a turn of events that is weighing on the pound.

Data from the Bank of England yesterday showed a rise in mortgage approvals in April for the first time since November. The Chancellor’s six-month extension of the stamp duty holiday triggered a fresh surge in mortgage demand, according to the latest figures from the central bank. The data from Threadneedle Street revealed that in April – the month after Rishi Sunak’s budget statement – the number of mortgage approvals rose from 83,400 to 86,900.

US Economic Growth Increases at a “moderate pace”

The dollar firmed ahead of comments from US Federal Reserve officials and the central bank’s Beige Book – a survey of economic activity across its 12 districts. With the US economy on track to recover from the pandemic, investors are looking for signs that will indicate whether the recent growth will translate into inflation and encourage the Fed to ease or withdraw its fiscal support.

The dollar edged up after the Beige Book said that economic growth increased at a “moderate pace” from early April to late May.

By this morning, the pound to dollar rate was in the 1.41 mid-range.

Looking Ahead

The UK Markit Services PMI is slated for release this morning.

It’s a busy day in the data calendar over in the US, with several notable reports scheduled for release, including: ADP Employment Change, Initial Jobless Claims, the Markit Services PMI and the ISM Services PMI.

Tomorrow sees the release of highly-anticipated Nonfarm Payrolls data from the US economy, which will provide a clear indication of the health of the US jobs market – and give clues as to whether the Federal Reserve will reign in its monthly asset purchases.

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