Pound to Dollar Rate Reverses Early Gains

Pound to Dollar Rate Recovers Losses

Following another brief foray above the 1.37 level early on Monday, the pound found itself on the back foot against the dollar for much of the day – a trend that continued into this morning. It appears that recent optimism surrounding the UK’s vaccination programme – more than six million adults in the UK have already received at least one dose of the Covid-19 vaccine – has been priced into the market, limiting its ability to strengthen the pound.

When will lockdown restrictions be eased? The only person who can answer the question that is on everyone’s lips is still not sure himself, with Boris Johnson saying: “I do think now this massive achievement has been made of rolling out this vaccination programme, I think people want to see us making sure we don’t throw that away by having a premature relaxation and then another big surge of infection”. This lack of clarity helped to drag the pound to dollar rate lower on Monday. However, the prime minister did announce that the government will look at the possibility of lifting some restrictions in England from mid-February – including the return of pupils to school.

Dollar Makes a Steady Start to the Week

The dollar was firm on Monday as rising cases of Covid-19 and concerns over the pace and size of US stimulus tempered financial markets’ upbeat mood – making the safe-haven dollar a more attractive option. President Biden has indicated that the US plans to be vaccinating an average of 1.5 million Americans a day – but warned the nation could see between “600,000 and 660,000 deaths before we begin to turn the corner in a major way”. Meanwhile, Mr Biden is still fighting to get his $1.9 trillion stimulus package through Congress – if successful, this will provide the funds needed to roll out the national vaccination programme.

The Chicago Fed’s national activity index – a gauge of overall US economic activity – ticked higher in December. The factory sector boosted the index last month, while consumption indicators weakened. It demonstrates that the US economy is struggling to grow as Covid-19 cases sweep across the country. The data also paints a picture of a healthy factory sector and a struggling service economy.

Looking Ahead

Following a barren day in the UK’s economic calendar on Monday, today sees the release of the claimant count change for December and the ILO unemployment rate for the three months to November. Over in the US, the consumer confidence figure for January hits the headlines.

The Federal Reserve meets tomorrow, with the central bank expected to signal that it’s not planning to wind back its massive stimulus any time soon – news that could weigh on the dollar. IF you have an upcoming dollar exchange and would like to discuss these factors in further detail, feel free to get in touch using the form below – I’ll be happy to respond personally and discuss your requirements.