Pound to Dollar Rate Subdued Ahead of Key US Inflation Gauge

The dollar lacked impetus yesterday as investors looked ahead to US inflation data scheduled for release tomorrow after softer-than-expected jobs data last week dampened expectations that the Federal Reserve will taper its stimulus early. The data weighed on US bond yields, pinning them near recent lows and making the dollar weaker in the process. Investors now widely expect that the US central bank will announce a plan to reduce its bond purchase in the coming months, and actual tapering to begin at the start of 2022.

The US trade deficit has slipped slightly from the record high reported in March, dropping 8.2% to $68.9bn in April, the Commerce Department reported on Tuesday. The move lower was attributed to a 1.1% rise in exports and a 1.4% fall in imports. April exports totalled $205bn, $2.3bn more than March, while April imports were $273.9bn, down $3.8bn.

Confidence amongst small businesses in the US slipped lower in May. This represented the first decline in four months, as labour shortages across the country and inflation concerns cooled business owners’ economic outlook, according to a survey released yesterday. The National Federation of Independent Business Optimism Index dropped to a reading of 99.6 in May from 99.8 the previous month, following three straight monthly increases. Five of the 10 component used to compile the index improved, while three declined and two were unchanged.

Pound moves sideways

The pound was also subdued yesterday. Devoid of any notable data until Friday – only the RICS Housing Price Balance is scheduled for release before then – and with the UK economy still waiting for confirmation that lockdown restriction will be eased fully on 21 June, the UK currency moved sideways. On Monday, Health Secretary Matt Hancock suggested the government is “open” to delaying the next stage of lockdown easing.

By this morning, the pound vs dollar rate remained in the 1.41 mid-range.

Looking ahead

The RICS Housing Price Balance for May is slated for release this evening and is forecast to tick higher from 75% to 77%. An empty UK calendar tomorrow means investors must wait for a raft of data on Friday, including: Manufacturing Production, Industrial Production, and Gross Domestic Product.

MBA Mortgage Applications are scheduled for release from the US economy today. Tomorrow sees the release of several notable data sets, including the US Consumer Price Index, with the inflation data expected to provide clues on when the Federal Reserve will begin tapering its fiscal stimulus.

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