The pound shrugged off disappointing UK retail sales figures released overnight on Tuesday – enabling it to reach its strongest level against the dollar since April 2018 on the back of vaccine progress, Bank of England (BoE) optimism and dollar weakness. According to the British Retail Consortium, sales in January rose at the slowest pace since the depths of the first lockdown, as non-essential spending was stifled by consumer concerns. The current restrictions have hit non-essential retailers harder than November’s month-long lockdown, with the new variant hindering consumer confidence and causing them to reign in their spending – especially in terms of clothing and footwear.
The pace of the UK’s vaccination programme – which has been swifter than other European countries – has raised hoped of an economic rebound this spring when the current lockdown restrictions are expected to be eased. Also supporting the pound broadly has been the BoE, which pushed back investor expectations of sub-zero interest rates as far as August 2022 during last week’s meeting of monetary policymakers.
By this morning, the pound vs dollar rate had broken through the 1.38 barrier for the first time in almost three years.
The absence of notable economic data from the US yesterday and a risk rally meant the pound to dollar rate was left with a clear path higher. Its journey above the 1.38 level was also aided by mounting concerns that massive fiscal spending and continued ultra-easy Federal Reserve monetary policy will ultimately hold the dollar back.
Yesterday’s reports from Washington suggest that President Joe Biden and Congressional Democrats plan on using a budget manoeuvre known as reconciliation to pass the $1.9 trillion stimulus relief package by early March.
Scheduled for release in the UK today is the Gross Domestic Product estimate from the National Institute of Economic and Social Research – a forecast of economic growth over the last 3 months. The report is considered reliable and has potential to influence UK monetary policy.
Inflation will be in the spotlight over in the US today when the monthly print of the consumer price index is released. The colossal size of the Covid relief proposal has sparked fears that further inflationary pressure could be imminent, despite Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell both playing down the threat.
BoE Governor Andrew Bailey and Federal reserve Chair Jerome Powell are set to make speeches today, which will both be monitored by investors for any indication of the central bank’s economic outlook. To know more about the potential impact of these speaches on your currency exchange, you can get int touch using the form below.