Pound to Dollar Rate Takes Comfort in Bailey Comments

Pound to Dollar Rate Recovers Losses

The pound to dollar rate hit 1.42 on Wednesday morning for the first time since April 2018, amid optimism about the UK’s economic prospects as the country prepares to gradually emerge from lockdown – and a persistent bout of dollar weakness. It has been a good year so far for the pound, which has risen by over 3% against the dollar in February and gained nearly 6% over the last three months – helped by the rapid vaccine rollout and the avoidance of a no-deal Brexit.

With Covid-19 infections waning, and Britain’s vaccine programme outpacing Europe, optimism is growing that the UK’s economy can spring back into life in 2021. Suddenly, the negative rates debate – which has been given careful consideration over the last couple of years – seems to have taken a back seat, with some analysts even suggesting the Bank of England’s (BoE) next move may be a rate rise.

Speaking to MPs on the Treasury Select Committee yesterday, BoE governor Andrew Bailey said the economy appears to be performing better than expected during the current pandemic restrictions as “we’ve all become more adept at finding ways to do things in lockdowns” – such as taking advantage of online shopping. He also stressed that Boris Johnson’s roadmap out of lockdown should stimulate rapid economic growth over the next six months, shifting GDP back to its pre-pandemic levels by early next year.

Powell settles inflation nerves

During a second day of testimony in Washington, Federal Reserve Chair Jerome Powell reiterated the central bank’s determination to achieve full employment in the US economy and to not worry about inflation unless prices increased in a persistent and concerning manner.

Mr Powell indicated that it may take more than three years to hit the Fed’s inflation targets – a further sign the central bank is aiming to look beyond any post-pandemic price rises and leave interest rates untouched for a while yet.

New US home sales surged again in January, driven by historically low mortgage lending rates. Sales jumped 4.3% last month compared to December, to 923,000 at a seasonally-adjusted annual rate – the level sales will reach if the pace continues at the same rate for 12 months.

Looking ahead

In contrast to the UK’s economic calendar, which is barren today, the US has plenty of influential data scheduled for release: Durable Goods Orders, Continuing Jobless Claims, Initial Jobless Claims, Nondefense Capital Goods Orders (excluding Aircraft), Gross Domestic Product Annualised (Q4), Pending Home Sales.