Pound to Dollar Rate Recovers Losses

Pound to Dollar Rate Pushed Higher by Falling Covid Cases and Weak Dollar

The pound to dollar rate has managed to limber up following a rather sluggish start to the week. Since Monday, the pair has been massaged into action by a dent in dollar demand, Covid vaccine optimism and sanguine economic data – rising above the 1.36 mid-range from 1.35 territory on Monday.

Growth in risk appetite in markets – bad news for the dollar – was the pound’s main ally, until Bank of England chief economist Andy Haldane joined the fray and defended the UK’s economic outlook yesterday: “If we get that recovery that I expect to start coming on stream, probably at a rate of knots from the second quarter, that will hopefully…improve the prospects of re-employment,” he told an online event for students and alumni at the University of Oxford. His words were fuelled by optimism surrounding Britain’s vaccine rollout – which is being achieved at a faster rate than almost anywhere else in the world – and tentative hopes the government will ease restrictions significantly by Easter.

Data published by the Office for National Statistics one Wednesday revealed that the UK’s inflation rate doubled last month as prices edged higher in the run-up to Christmas – despite the Covid-ravaged economy. Prices ticked up 0.6 per cent on a year earlier, according to the consumer price index data for December. The inflation rate remains historically low but managed to exceed forecasts of a 0.5 per cent rise – with November seeing only a 0.3 per cent year-on-year rise.

Yellen’s Stimulus Comments Cause Dollar to Slide

Having profited from risk aversion that bled into this week from last, the dollar’s progress was thwarted by an upturn in broader risk appetite yesterday. A scheduled appearance by Janet Yellen before the Senate Finance Committee was responsible for blocking its path. The US Treasury Secretary nominee was expected to bang the drum for major fiscal stimulus – and she didn’t disappoint, saying “Neither the president-elect nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big”.

Looking Ahead

The big day has arrived: Joseph Robinette Biden Jr will be inaugurated as the 46th president of the United States. What might this mean for the dollar? The new president is poised to undo many of the policies – particularly around trade and corporate tax – that put wind in the dollar’s sails, potentially generating choppy waters that could cause its value to sink.

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