Pound to Dollar Rate Holds Steady Despite Third Lockdown

Pound to Dollar Rate Recovers as Risk Sentiment Improves

On Monday evening, UK prime minister Boris Johnson announced new lockdown restrictions until the middle of February during a live televised address to the nation – asking the public to remain and work from home. Neither Mr Johnson’s announcement nor finance minister Rishi Sunak’s promise of new grants to support retail, hospitality and leisure firms excited the pound to dollar rate yesterday. Instead, the pair spent much of the day meandering between the 1.35 and 1.36 levels.

So, how has the pound vs dollar rate managed to fend off expectations of tighter restrictions across Britain to curtail surging coronavirus cases – and subsequent jitters about the economic impact? It appears that optimism about Britain’s orderly exit from the EU and hopes that the Covid-19 vaccine rollout can help the UK jab its way out of lockdown – sparking an economic bounce-back – are propping up the pound.

US Manufacturing Sector Demonstrates Resilience

The downbeat dollar received some welcome news in the shape of upbeat ISM Manufacturing Purchasing Managers’ Index (PMI) data yesterday. Expectations of a slowdown in US manufacturing activity in December were eased by news that the PMI had exceeded forecasts, following a fall in November. The reading complemented Monday’s IHS Markit Manufacturing PMI for December, which recorded its highest print for 2020. Both reports provide reassurance that the US manufacturing sector has learned how to manage COVID.

Looking Ahead

A key driver of the pair today could be the results of the two runoff elections in Georgia – due this morning – that will decide control of the US Senate. If the Democrats secure both seats, President-elect Joe Biden’s party will have control of both houses of Congress – handing him more power to implement new legislation. On the other hand, outgoing President Donald Trump’s Republican party needs only to win one seat to retain the Senate.

News reports this morning indicated that the election was on a knife-edge. The dollar could weaken if the Democrats prevail, as this would enable them to introduce a larger fiscal stimulus programme, reducing safe-haven demand for the US currency.

Investors will be monitoring a speech by Bank of England Governor Andrew Bailey this afternoon, for his assessment of the economic outlook against a backdrop of the Brexit deal, lockdowns, and vaccines. Meanwhile, across the pond, the latest Federal Open Market Committee meeting minutes will shed light on the Federal Reserve’s interest rate policy for 2021. Also on the agenda in the US is the latest ADP Employment Change reading for December – a measure of the change in the number of employed people in the US – which is forecast to fall sharply.

Get in touch using the form below to discuss these factors in further detail and how your upcoming currency exchange could be impacted.