Pound to Dollar Rates Subdued by Safe-Haven Demand

Pound to Dollar Rate Dips Due to Risk-Off Mood

The pound was still suffering a hangover from Friday’s underwhelming economic data as the new week dawned. With the latest gross domestic product figure revealing that a double-dip recession for the UK is unavoidable and the industrial sector’s recovery dwindling, it began Monday on the back foot against the dollar.

The economic outlook was also dealt a blow by lockdown expectations. Despite Prime Minister Boris Johnson saying the nation’s vaccine programme has reached a “significant milestone” – those aged 70 and over in England, and those listed as clinically extremely vulnerable, will begin receiving offers of a vaccine this week – and early data suggesting the infection tide may be turning in some parts of the country, the lockdown timeline remains blurred. Responding to questions about the potential for loosening the draconian restrictions, Downing Street said “It’s just too soon. We’re nowhere near even looking at what the process would be.”

Safe-Haven Demand Supports Dollar

The dollar was still riding the risk aversion wave on Monday – a national holiday in the US – following the release of weak US economic data at the end of last week that attracted investors to the currency’s safe-haven status.

The resulting dollar strength was largely responsible for dragging the pound to dollar rate into the lower reaches of 1.35 territory yesterday. By this morning, however, the pair had managed to rally just above the 1.36 benchmark after the dollar slipped ahead of US Treasury Secretary nominee Janet Yellen’s testimony before the Senate today – with investors keen to know how much debt is too much in the wake of the announcement of Joe Biden’s stimulus package?

Looking Ahead

A speech from the Chief Economist at the Bank of England, Andrew G Haldane, this evening will be monitored for his monetary policy outlook against the backdrop of the pandemic. We must wait until tomorrow for the first notable economic data releases of the week when the UK consumer and retail price indices are released – both key indicators used to measure inflation are forecast to tick higher, which could lend the pound some support.

With US markets shut yesterday and a lack of influential data slated for release today or tomorrow, expectations surrounding Joe Biden’s inauguration as US President on Wednesday are providing the dollar with additional tailwinds. His accompanying speech is highly anticipated as it will outline his administration’s approach to the health and economic crisis, following the announcement of a $1.9tn (£1.4tn) fiscal stimulus package last Thursday. Potential tax hike expectations could also be fuelled by the incoming President’s address.