Pound to Dollar Week Review: Sajid Javid’s Shock Resignation Sends GBP to USD Rate Higher

Pound to dollar rates: pound’s gains capped by Brexit uncertainty
  • Signs of Post-Election Economic Recovery
  • Fed Comments Boost Dollar
  • Looking Ahead

Signs of Post-Election Economic Recovery

The pound to US dollar rate manged to mount a slight recovery from the previous weeks drubbing on Monday. However, before it began its trudge higher it briefly dipped to a 10-week low, as Brexit concerns continued to drag it down.

Tuesday’s gross domestic product (GDP) figure revealed that the British economy failed to grow between October and the end of December – slowing from 0.5% in the third quarter. GDP was held back by a reduction in Christmas consumer spending and a significant dip in manufacturing output. The data released by the Office for National Statistics also showed that annual growth increased by just 0.1% to 1.4% – one of the weakest annual growth rates since the financial crisis.

Despite the downbeat GDP survey, there were tentative signs of an early post-election economic rebound for the pound to take comfort from, after the economy expanded by 0.3% in December from November. This uplift in business confidence in the wake of Boris Johnson’s landslide election victory helped the GBP vs USD rate to continue its gradual advance towards the 1.30 level, as did news of a sizeable increase in government spending.

The pair finally managed to breach the 1.30 level on Thursday and did so in style, following Sajid Javid’s shock resignation as chancellor during Boris Johnson’s cabinet reshuffle. The pound was buoyed by the announcement of Rishi Sunak as his successor, with markets confident he will implement looser monetary policy measures that prevent the Bank of England from cutting interest rates.

Fed Comments Boost Dollar

The US dollar picked up where it left off the previous week when it was given a further leg up by upbeat comments from Federal Reserve governor Michelle Bowman on Monday, who said the central bank’s monetary policy “should help support the economic expansion”.

The Fed delivered more positive rhetoric on Tuesday, as Chair Jerome Powell made the first of his semi-annual appearance before Congress. He used the platform to inform the Financial Services Committee that the central bank remains on hold in its interest rate stance and the economy appears durable.

Thursday’s US Consumer Price Index revealed that underlying inflation rose in January. The firm figures came hot on the heels of Mr Powell’s remarks to lawmakers on Wednesday that the “economy is in a very good place, performing well.” and “over the next few months, we expect inflation to move closer to 2%, as unusually low readings from early 2019 drop out of the 12-month calculation.”

Looking Ahead

Dollar investors will continue monitoring developments around the coronavirus outbreak and its impact on global and domestic growth; an escalating international crisis that has swelled demand for the safe-haven dollar.

A slow start to the week in the US economic calendar – including a bank holiday on Monday – means Wednesday’s building permits, housing starts and producer price index are the first releases of note.

Tuesday’s ILO unemployment rate is the first significant figure to hit the headlines in the UK, with the number of unemployed workers divided by the total civilian workforce expected to hold steady at 3.8%. Investors in the pound will also be keeping a close eye on the consumer price index on Wednesday.

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