Pound to Dollar Rate Hits Three-Month High

Pound to dollar rate hits three-month high

The pound to dollar rate threatened to break through 1.34 towards the end of last month, only to be held back by post-Brexit uncertainty and fresh lockdown restrictions in the UK. As December dawned yesterday, the pair was finally propelled above the major resistance level for the first time in three months. Optimism that a trade deal can be struck with the EU at “the 59 minute of the 11th hour” fuelled the surge before lingering concerns resurfaced – sending the pair back where it came from. Contradictory headlines continue to alert investors to the thorny issues of fisheries and state aid – and their potential to derail a post-Brexit trade deal.

The Brexit roller-coaster ride was far from over, however, after the pound to dollar rate suddenly rose back above 1.34 for the second time in the space of eight hours. But rather than hurtling back down again, the Brexit speculation see-saw tipped in favour of British and European officials breaking the impasse – leaving the pair riding high. The jolt higher in the pound and its ability to consolidate it shows how eager traders are to jump on signs momentum is building for a pact.

Better-than-expected UK manufacturing data punctuated both spikes. Activity in the sector increased for the sixth month in a row in November, as factories rode the impact of the second national lockdown. November’s IHS Markit/Cips Manufacturing Purchasing Managers Index (PMI) – which was forecast to hold steady – headed further into expansion territory at 55.6.

US Dollar Loses Ground Against the Pound

The pound vs US dollar rate’s upward trajectory was given a helping hand by fresh optimism about a COVID-19 vaccine. News that regulators are set to approve emergency use of the Pfizer/BioNTech jab put the dollar on the back foot. Comments from the world’s most powerful central bank official, Jerome Powell and a disappointing ISM Manufacturing PMI compounded the dollar’s situation.

The Chairman of the Federal Reserve, Jerome Powell pointed to vaccine distribution concerns, the economic dangers of a surge in virus cases and unemployment levels while testifying before the Senate Banking Committee. Meanwhile, the latest headline PMI registered at 57.5 – a decrease of 1.8 from October and below forecasts of 58.

Looking ahead

A quiet day in the UK economic data calendar today means trade talk progress will dominate sentiment towards the pound. In contrast, it’s a busy day in the US with ADP Employment Change figures on the agenda, followed by a speech from the president of Federal Reserve Bank of New York, John C. Williams.

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