Pound to Dollar Rate Retreats from Multi-Month High

GBP USD Slips Ahead of BoE Rate Decision

Optimism has been hard to come by for the pound in recent months. But with the post-Brexit free trade deal in the bag, the rapid rollout of Covid-19 vaccines – the UK is giving 200 vaccinations every minute – has also lifted investors spirits this week, adding to the currency’s relief rally. This upward movement saw the pound reach its highest level against the dollar in almost three years on Thursday – crossing the 1.37 line to hit its highest level since April 2018. And it was not just a fleeting visit like recent forays above the elusive benchmark – the pair settled in for the day and remained there until this morning when it sunk back into 1.36 territory.

If the vaccination process were a race, the UK would be in first place ahead of other large economies – more than 4 million people have already received their first dose of a vaccine. This is welcome news for the country’s service dominated economy, which has been forced to shutter its doors once again during the latest lockdown.

In contrast to Wednesday’s largely sanguine data from the UK economy, this morning’s releases had a more realistic feel about them, causing the pound vs dollar rate to edge lower. Official figures show that British retail sales experienced their biggest annual decline in history in 2020 as the pandemic blindsided the economy. So, it came as little surprise that the latest consumer confidence index from market research firm GfK slipped lower in January, as worries about the latest lockdown took hold.

Dollar drops further on stimulus optimism

A bad week for the dollar got worse yesterday when it fell for a fourth consecutive day against the pound. Optimism was once again at play; however, on the other side of the Atlantic, it was proving a hindrance as President Biden’s huge stimulus package continued to raise hopes of an economic recovery.

A raft of better-than-expected US data also boosted the outlook for the world’s largest economy yesterday. Homebuilding and the number of permits for new construction projects rose in December, as historically low mortgage rates supported the housing market. New claims for US unemployment benefits reduced slightly to 900,000 from a four-month high last week – although the pace of lay-offs remains high as the pandemic and shutdowns continue to weigh on the economy. Manufacturing conditions in the Philadelphia region picked up in January, exceeding expectations in the process, according to a survey released on Thursday.

Looking ahead

The latest Markit services PMI for the UK economy is forecast to retreat further into contraction territory this morning – any evidence that the UK’s dominant services sector is under the cosh could leave the pound floundering following a week that has seen it soar against the dollar.