Pound to Dollar Rate Slips to Lowest Level in a Week

Pound to Dollar Rate Plummets as Investor Confidence Wanes

The pound to dollar rate dropped to its lowest level in a week yesterday as it slid closer to the 1.36 level. Partly responsible for the pound’s poor performance were reports that UK house prices fell month-on-month in January for the first time since the introduction of a stamp duty holiday. The downbeat news suggests the mini property market boom has ground to a halt as the tax break approaches.

The Nationwide house price index contracted by 0.3% in January compared with December, the first fall in seven months and down from a 0.9% expansion in the previous month – a much softer reading than the 0.3% expansion forecast by economists.

Joe Biden Begins Stimulus Package Negotiations with Republicans

Joe Biden has begun wrangling over his $1.9 trillion stimulus package with Republicans this week – his first notable negotiating session with political rivals since being sworn in as US president last month. Despite escalating his efforts to garner support for his Covid relief bill, Mr Biden appears determined to push ahead even if they fall on deaf ears – lending support to the dollar.

The president met a group of 10 Republican lawmakers after they proposed their own version of an economic relief package worth $618 billion to cushion the impact of the pandemic – well under what the Biden administration and many Democrats believe is required to support the US economic recovery.

Looking Ahead

The UK Markit Services Purchasing Managers’ Index for January is forecast to hold steady at 38.8 – a reading under 50 represents contraction for the UK’s dominant sector. Meanwhile, over in the US, a slew of data is slated for release for the January period: ADP Employment Change, Markit Services PMI, ISM Services PMI, ISM Services Employment Index, ISM Services Prices Paid.

The Bank of England’s Monetary Policy Committee is scheduled to hold its February meeting tomorrow. Not only is the Bank expected to hold interest rates steady; it will reveal the findings from its report assessing the UK’s readiness for negative interest rates, as it explores potential options for strengthening the economy amid the fallout from the Covid-19 pandemic.

Negative rates would mean charging commercial banks and building societies to deposit funds at the central bank, in an attempt to trigger additional lending and cheaper borrowing costs. However, the leading representative of Britain’s building societies, Mike Regnier, told Threadneedle Street that this move would fail to boost the stricken economy because lenders would subsequently increase mortgage costs, saying: “I fear this would have the opposite effect from supporting the economy, as rates would go up for borrowers as banks protect their margins,”.

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