Pound to Dollar Rate Touches 1.40 for First Time Since 2018

Pound to Dollar Rate Moves Higher Following Fed Meeting Minutes

Almost a year since Covid-19 emerged as a threat to global markets, the pound climbed to 1.40 against the dollar for the first time since April 2018 on Friday. The UK’s rapid vaccination programme has sparked hopes that a sharp economic recovery is around the corner. The move higher means the pound has gained 2.4% against the dollar since the end of 2020.

Investors were also left to contemplate a mixed bag of data from the UK on Friday morning. A bigger than expected drop in retail sales in the UK in January exposed deep scars left by the latest round of lockdowns. UK consumer sentiment strengthened this month but remained relatively gloomy due to the pandemic.

Meanwhile, the flash PMI reading from IHS Markit/CIPS suggested that the UK downturn was not as bad as economists feared. Its composite index – which consists of both the manufacturing and service sectors – leapt to 49.8 from 41.2 in January, just below the 50 mark that separates expansion from contraction. Conditions improved for services firms, despite the Covid-19 lockdown, although activity continued to drop. Manufacturers have been boosting production, but output was hit by Brexit, causing the sectors PMI to fall a nine-month low.

Dollar slips lower on risk appetite

The pound to dollar rate’s surge was aided by the latter’s decline on Thursday and Friday, as investors piled into currencies associated with risk-on sentiment. Risk appetite was fed by better-than-expected US data and expectations that President Biden’s proposed $1.9 trillion relief package will pass through the Senate. Economic activity in the service sector increased at a stronger pace in February than it did last month. The IHS Markit Services PMI rose to 58.9 (preliminary) from 58.3, exceeding market forecasts of 57.5.

Looking ahead

Boris Johnson spent the weekend finalising the details of his plan for easing lockdown restrictions in England and opening up the economy. The prime minister said he would set out “what we can” in a roadmap announced later today. “We want to be going one way from now on, based on the incredible vaccination rollout,” he said. Schools are expected to reopen across England on 8 March as part of Mr Johnson’s “cautious” four-part plan to lift the Covid-19 lockdown.

President Biden’s plan to flood the US economy with $1.9 trillion in financial aid, to combat the economic impact of the pandemic, could come to a House vote early this week – with expectations rising that it will pass through.