The pound remained well supported on Monday as the ongoing vaccination programme continues to gather pace in the UK. With over 12 million people in receipt of at least one dose of a Covid vaccine already, the UK is on course to inoculate 16 million people in the top four priority groups by 15 February – comfortably outstripping the government’s aim of 15 million people. Vaccine optimism combined with falling expectations of negative rates – after the Bank of England put the historic move on hold last week – ensured the pound made a bullish start to the week.
Overnight, the latest British Retail Consortium Like-For-Like Retail Sales showed that January sales registered the sharpest decline since last May, as shoppers cut back non-essential spending and lockdown restrictions strangled store sales.
Economic recovery doubts hold back dollar
The dollar was flat yesterday after falling sharply on worse-than-expected US jobs data on Friday. Despite the economic setback, investors continued to price in faster a recovery in the US than most countries. They view the influential non-farm payrolls report as a speed bump rather than a roadblock against a backdrop of vaccine rollout progress and attempts by Democrats to fast-track the huge Covid-19 relief package.
However, it was not long before investors had the wind knocked out of their optimism, as concerns began to surface that massive fiscal spending coupled with continued ultra-easy Federal Reserve monetary policy will drag down the dollar in the longer term.
By this morning, the pound to dollar rate had soared to a 34-month high, with a bout of dollar selling, and the UK’s vaccine progress, providing the propulsion.
With nothing of note to report from the UK or US economic calendars today, attention will be on tomorrow’s Gross Domestic Product estimate from the National Institute of Economic and Social Research (NIESR). Leading economists at NIESR predict that the UK economy will grow by little more than three per cent in 2021 following a 10 per cent slump last year, with the aftershocks from Covid and Brexit likely to be felt for years.
Also slated for release tomorrow is the US Consumer Price Index. Economists are forecasting steady but slow gains for consumer prices in January, following a jump in gasoline costs pushed the inflation index higher at the end of last year. However, underlying pressures are likely to remain contained while the pandemic continues to suppress demand.
The Democrat-led US Senate is continuing its efforts to get the $1.9 trillion stimulus bill approved. This aims to boost consumer spending, strengthen vaccine delivery and trigger a faster recovery from the pandemic.