Pound to Dollar Rate Soars to Fresh Two-Year High

GBPEUR Looks Vulnerable but Data Will Decide

The pound to dollar rate was catapulted higher yesterday morning, following a steady period of decline that saw it drop to within a whisker of the 1.36 level. Providing the rapid propulsion back above 1.37 – an area of the currency chart that has demonstrated resistance recently – was a rebound in risk sentiment. The dollar subsequently slipped lower as riskier currencies were given an injection of strength, just a day after vaccine and fiscal stimulus concerns boosted demand for the safe haven. Mounting Covid-19 cases and jitters ahead of the Federal Reserve’s first meeting of monetary policymakers this year had dented risk appetite, lending support to the dollar on Monday.

Investors are monitoring the progress of President Biden’s $1.9 trillion stimulus package after US Senate Majority Leader Chuck Schumer indicated that Democrats may try to pass much of the package with a majority vote – although it is not clear if they have the numbers required to override Republican objections.

The US consumer confidence index increased moderately in January, rising to 89.3 from 87.1 in December – narrowly exceeding forecasts. The slight tick higher reflected the vaccine roll out and the fiscal stimulus package, which have lifted consumers’ near-term expectations.

Pound Rebounds Higher

The UK’s unemployment rate hit its highest level since 2016 in the three months to November – although the increase was weaker than forecast. The jobless figure rose to 5 per cent as coronavirus cases began to surge again and fresh lockdown restrictions took their toll, according to official figures from the Office for National. Meanwhile, the claimant count — another measure of unemployment that includes people who are working on low pay and claiming benefits — increased slightly to 2.6m in December.

The pound vs dollar rate sailed to a fresh two-year high overnight, as tailwinds created by dollar weakness and better-than-expected jobs data were made stronger by optimism surrounding the UK’s rapid vaccine roll-out – which investors hope can support the country’s economic rebound.

Looking Ahead

The UK’s economic data calendar is dry today. In contrast, several influential releases are due for release in the US: nondefense capital goods orders excluding aircraft for December and durable goods orders for December, which is forecast to dip slightly lower – a potentially negative outcome for the dollar.

The Federal Reserve releases its monetary policy statement today after its first two-day FOMC meeting of 2021 – and the first since Joe Biden became president. The central bank is expected to re-emphasize that it is still too early to talk about reducing the pace of quantitative easing at this stage, despite the prospect of additional fiscal aid under the Biden administration.

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