Pound to Dollar Rate Reacts to Freedom Day Developments

The pound slipped to 1.38 against the dollar on Monday morning, having jumped above the 1.39 benchmark on Friday. Anticipation of the government’s ‘Freedom Day’ announcement weighed on the UK currency, with new Health Secretary Sajid Javid poised to confirm plans to remove nearly all remaining lockdown restrictions in England from 19 July. With cases of Covid-19 rising, investors have become concerned that the government’s expected decision could be unsustainable. If lockdown restrictions are reimposed, it’s likely that they will be stricter and last longer, which could dampen market optimism that the Bank of England might hike interest rates.

Later on Monday, it was confirmed that England will transition to the final stage of easing Covid restrictions in line with the projected timeline – meaning almost all legal restrictions on social contact will be removed from 19 June. Mr Javid told the Commons that cases of Covid-19 could reach 100,000 a day in the coming weeks, but he does not think this would put “unsustainable pressure on the NHS”.

With vaccinations creating a “protective wall”, Mr Javid believes “we can withstand a summer wave”, which would be preferable to pushing the virus towards winter when it would be at its most transmissible. “There will never be a perfect time to take this step because we simply cannot eradicate this virus – whether we like it or not, coronavirus is not going away.”

Retail sales surged in the quarter to June as British shoppers flocked back to the high street following the easing of lockdown restrictions in April – and people continued to spend more online.

The latest BRC-KPMG retail sales monitor showed total sales surged 13.1% in June, compared to a decline of 1.3% in June 2019, before the pandemic struck.

Dollar nudges higher as pandemic concerns mount

The dollar profited from its safe-haven status on Monday as concerns about the Covid-19 pandemic cooled risk appetite and investors awaited clues about the global economic recovery. Reports from around the globe of surging infections of the Delta variant dented investors’ appetite for riskier assets.

On Monday, Federal Reserve Bank of New York President John Williams said that conditions are not yet right to taper the central bank’s $120 billion a month stimulus programme. Mr Williams told reporters on Monday that “We set a very clear marker, I think, not a quantitative marker, but a very clear marker that we want substantial further progress (on job market improvement) relative to where we were” adding “That’s where I’m focused, clearly right now we have not achieved that,”

By this morning, the pound vs dollar rate remained at 1.38 having briefly rallied to 1.39 overnight.

Looking ahead

With investors sensitive to any talk of early tapering, US inflation figures will be closely monitored today ahead of testimony by Federal Reserve Chair Jerome Powell on Wednesday and Thursday. UK inflation data is slated for release on Wednesday.

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