Pound to Dollar Rate Reverses Initial Gains

Pound to Dollar Rate Feels Weight of Covid Concerns

The pound to dollar rate made a false start to the week. Following an initial rise, the pair slid below the 1.37 benchmark, despite stronger-than-expected UK manufacturing data and ongoing Covid-19 vaccine optimism – the UK’s rollout is outpacing the US and Europe, with around nine million people inoculated so far. However, it was reported yesterday that door-to-door testing for the South African mutation of the coronavirus is required in England after multiple cases were reported in parts of the country. Previous infections involving the variant were traced back to South Africa, but health officials revealed 11 people had been identified recently who tested positive for the variant with no links to travel.

UK manufacturing activity improved more-than-expected last month. The seasonally adjusted IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) was revised higher to 54.1 in January, compared to a forecast of 52.9 and first readout of 52.9. Despite the upward revision, the figure came in at a three-month low, demonstrating a hit to new export orders, signs of supply chain problems and inflation pressure.

Dollar Softens as Safe-Haven Demand is Sapped

The safe-haven dollar sank under the weight of growing risk sentiment yesterday as Asian stocks rallied following four days of losses. Debate over the size of President Biden’s fiscal stimulus package and delays to vaccine rollouts provided additional reason for caution. On Sunday 10 Republican senators sent a letter to Mr Biden asking him to consider a smaller relief spending plan to combat the Covid-19 crisis

The ISM Manufacturing Purchasing Manager’s Index (PMI) fell modestly last month, arriving at 58.7, but stayed comfortably above the 50 mark – which represents expansion. Business activity in the US manufacturing sector expanded at a steady pace in January, but the reading fell short of analysts’ estimate of 60.

Looking Ahead

A quiet day in the economic data calendar on both sides of the Atlantic today means investors will be focusing on events that occur later in the week. Tomorrow sees the release of UK services PMIs and US non-manufacturing PMIs. On Thursday, the Bank of England will announce its latest monetary policy decision. Vaccine hopes have pushed back bets on an interest-rate cut from the Bank to next year, despite policymakers gearing up to publish the responses to a consultation on negative rates on Thursday. On Friday, the US Bureau of Labor Statistics publishes its influential US Non-Farm Payrolls report – a key barometer of US economic health.

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